Local community leaders and other stakeholders are sounding the alarm on Basel III Endgame's impact on the municipal bond market. The nation’s largest banks account for almost half of municipal securities underwriting and hold $95 billion in municipal securities. Basel III Endgame's restrictive capital requirements would limit the availability of funds for local governments issuing municipal bonds, making it more challenging and costly for them to finance vital public projects and infrastructure improvements.

Here's what local leaders, experts, and regulators are saying:

• Aliquippa, Pennsylvania Mayor Dwan B. Walker noted that Basel III Endgame will impede investment in community development: "We should be creating a financial environment that allows these historic investments to flourish, not only building critical new infrastructure but resulting in economic growth through good-paying jobs that result from those projects. Sadly, the Federal Reserve’s proposal would do the opposite, making it unclear as to whether quick access to credit and lending services will continue to be available." (Mayor Dwan B. Walker, Op-ed, Triblive, 1/19/2024)
• American Securities Association President and CEO Chris Iacovella noted that Basel III Endgame will stifle community investment and economic growth by driving up the price of borrowing for local governments: "Municipalities in the municipal bond market issue bonds to provide funding for infrastructure, school systems, public safety, hospitals, the climate transformation, and the basic needs of every community in America… Institutions subject to Basel III will therefore be disincentivized from trading or holding these bonds. This will drive up borrowing costs for municipalities ultimately raising costs or shrinking project scope for communities all over the country." (American Securities Association President and CEO Chris Iacovella, Letter, 1/16/2024)
• The National Association of Health and Educational Facilities Finance Authority, National Association of State Treasurers, and others argued that Basel III Endgame will result in decreased investment in infrastructure, public safety, education, and numerous other social services financed through municipal bonds: "Our U.S. State and local government issuers and conduit nonprofit borrowers rely on access to affordable credit, primarily through the issuance of municipal bonds and direct loans from financial institutions, to finance our nation's infrastructure assets and critical public services. These borrowing opportunities are often made more affordable by the tax-advantaged treatment of qualified bonds and relationships built between local lenders and borrowers. Increases in debt service costs for municipal issuers and conduit borrowers will result in declined investment in infrastructure, public safety, education, and numerous other social services." (Government Finance Officers Association et al., Letter, 1/16/2024)
• Federal Reserve Board Governor Michelle Bowman warned that Basel III Endgame may limit the availability of municipal bond financing: "When a local government issues municipal bonds to finance local infrastructure, they may find that financing is more expensive, or in some cases unavailable." (Federal Reserve Board Governor Michelle Bowman, Press Release, 7/27/2023)

Stakeholders from around the country could not be clearer: Basel III Endgame will hurt local communities. It's time for regulators to scrap the proposal and start over.