Why the fuck is The Fed setting the stage to bankrupt local municipalities?

[Sgent]

21. Regulators Open to Counting Muni Bonds in Bank Assets

http://online.wsj.com/articles/banking-regulators-open-to-including-municipal-bonds-in-bank-financing-rule-1410284586

WASHINGTON—Federal banking regulators said they plan to revisit a decision to exclude municipal securities from a postcrisis rule aimed at ensuring banks have enough cash on hand to survive a crisis, saying they are open to allowing some debt issued by states and localities to count as a "safe" asset.

Top officials from three bank regulators—the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.—told Senate lawmakers Tuesday they would consider altering a rule completed last week that requires banks to hold enough cash or cash-like assets to fund their operations for 30 days. Previously, only the Fed had expressed a willingness to alter the rule.

Municipal securities currently don't count as a "high-quality liquid asset" under the rule, which means they won't qualify under the new funding requirements. State and local officials have said the exclusion could prompt banks to retreat from the municipal debt markets, forcing governments to scale back spending on roads, schools and other infrastructure projects financed with municipal bonds. Banks play an increasingly important role in the market, having nearly doubled their ownership of municipal securities over the past decade to more than 11%, according to Fed data.

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It seems like muni's were excluded to to liquidity issues, not due to high quality or not. I don't know how real that issue is, and there maybe some bonds that are reasonably liquid and others which are not.