Add a note about this bill. Your note is for you and will not be shared with anyone.
Because you are a member of panel , your positions on legislation and notes below will be shared with the panel administrators. (More Info)
The text of the bill below is as of Sep 9, 2008 (Reported by House Committee). The bill was not enacted into law.
Union Calendar No. 536
[Report No. 110–835]
IN THE HOUSE OF REPRESENTATIVES
Mr. Frank of Massachusetts (for himself, Mr. Capuano , and Mr. Kanjorski ) introduced the following bill; which was referred to the Committee on Financial Services
September 9, 2008
Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed
Strike out all after the enacting clause and insert the part printed in italic
For text of introduced bill, see copy of bill as introduced on June 19, 2008
To ensure uniform and accurate credit rating of municipal bonds and provide for a review of the municipal bond insurance industry.
This Act may be cited as the Municipal Bond Fairness Act .
Discriminatory Ratings Treatment of State and Municipal Securities
Preservation of authority to prevent discrimination
Section 15E of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–7 ) is amended—
by redesignating subsection (p) as subsection (q); and
by inserting after subsection (o) the following new subsection:
Ratings clarity and consistency
Subject to paragraphs (2) and (3) , the Commission shall require each nationally recognized statistical rating organization that is registered under this section to establish, maintain, and enforce written policies and procedures reasonably designed—
to establish and maintain credit ratings with respect to securities and money market instruments designed to assess the risk that investors in securities and money market instruments may not receive payment in accordance with the terms of issuance of such securities and instruments;
to define clearly any rating symbol used by that organization; and
to apply such rating symbol in a consistent manner for all types of securities and money market instruments.
Additional Credit Factors
Nothing in paragraph (1)(A) , (B) , or (C) —
prohibits a nationally recognized statistical rating organization from using additional credit factors that are documented and disclosed by the organization and that have a demonstrated impact on the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; or
prohibits a nationally recognized statistical rating organization from considering credit factors that are unique to municipal securities that are not backed by the issuer’s full faith and credit in its assessment of the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance.
The Commission shall not impose any requirement under paragraph (1) that prevents nationally recognized statistical rating organizations from establishing ratings that are complementary to the ratings described in paragraph (1)(A) and that are created to measure a discrete aspect of the security’s or instrument’s risk.
The Commission shall, by rule, establish performance measures that the Commission shall consider when deciding whether to initiate a review concerning whether a nationally recognized statistical rating organization has failed to adhere to such organization’s stated procedures and methodologies for issuing ratings on securities or money market instruments.
Consideration of evidence
Performance measures the Commission may consider in initiating a review of an organization’s ratings in each of the categories described in clauses (i) through (v) of section 3(a)(62)(B) during an appropriate interval (as determined by the Commission) include the transition and default rates of its in discrete asset classes.
General Accountability Office study of credit ratings
The Comptroller General shall conduct a study of the treatment of different classes of bonds (municipal versus corporate) by the nationally recognized statistical rating organizations. Such study shall examine—
whether there are fundamental differences in the treatment of different classes of bonds by such rating organizations that cause some classes of bonds to suffer from undue discrimination;
if there are such differences, what are the causes of such differences and how can they be alleviated;
whether there are factors other than risk of loss that are appropriate for the credit ratings agencies to consider when rating bonds, and do those factors vary across different sectors;
the types of financing arrangement used by municipal issuers;
the differing legal and regulatory regimes governing disclosures for corporate bonds and municipal bonds;
the extent to which retail investors could be disadvantaged by a single ratings scale; and
practices, policies, and methodologies by the nationally recognized statistical rating organizations with respect to rating municipal bonds.
Within 6 months after the date of enactment of this Act, the Comptroller General shall submit a report on the results of the study required by subsection (a) to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Development of the Senate. Such report shall include an assessment of each of the issues and subjects described in paragraphs (1) through (7) of subsection (a).
The Securities and Exchange Commission shall prescribe rules to implement the amendments made by section 101 within 270 days after the date of enactment of this Act.
Review of Municipal Bond Insurance Industry
Authority of Secretary
Authority To receive and collect information
Subject to subsection (b), the Secretary of the Treasury shall have the authority to receive and collect (directly from the States and other sources), and to analyze and disseminate, data and information, and to issue reports, regarding entities that insure or guarantee the payment of any portion of the principal and interest of any municipal obligation, including information, data and material regarding—
financial safety and soundness of such entities;
concentration of insurance liabilities of such entities;
performance of such entities under various scenarios of macro- and micro-economic stress;
underwriting standards for such entities; and
risk management of such entities.
With respect to the authority under subsection (a)—
the submission of any non-publicly available data and information to the Secretary shall be voluntary and such submission shall not constitute a waiver of, or otherwise affect, any privilege or confidentiality protection to which the data or information is otherwise subject;
to the extent that any such data and information has already been received or collected by, or can efficiently be received or collected by, the States (including the insurance commissioners of the States), the National Association of Insurance Commissioners, or any other appropriate source, the Secretary may enter into an information-sharing agreement with such source to provide for the receipt of such data by the Secretary;
any requirement under Federal or State law to the extent otherwise applicable, or any requirement pursuant to a written agreement in effect between the original source of any non-publicly available data or information and the source of such data or information to the Secretary, regarding the privacy or confidentiality of any data or information in the possession of the source to the Secretary, and any privilege arising under Federal or State law (including the rules of any Federal or State court) with respect to such data or information, shall continue to apply to such data or information after the data or information has been provided pursuant to this subsection to the Secretary;
the Secretary shall treat as confidential and privileged any data or information obtained from any source that is entitled to confidential treatment under applicable State or Federal law or regulations, or under any agreement to which the source is a party and shall take all reasonable steps to oppose any effort to secure disclosure of the data or information by the Secretary;
the Secretary may not in any case disclose to any party any personally identifiable information received or collected by the Secretary pursuant to this subsection; and
any non-publicly available data and information received or collected by the Secretary pursuant to this subsection shall be considered trade secrets and commercial or financial information that is privileged and confidential pursuant to section 552(b)(4) of title 5, United States Code.
Reports to Congress
The Secretary shall submit a report annually to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate on the financial state of the industry for insurance and guarantee of municipal bonds, meaningful trends in such industry, and the potential impacts on the overall financial system in the United States that entities providing such insurance and guarantees could have under various scenarios of macro- and micro-economic stress.
Retention of existing regulatory authority
This title may not be construed to establish any supervisory or regulatory authority of the Secretary over any entity that insures or guarantees the payment of any portion of the principal and interest of any municipal obligation.
For purposes of this title, the following definitions shall apply:
The term means any bond, note, security, or other debt obligation issued by any State, any political subdivision of a State, one or more political subdivisions of a State, or a State and one or more of its political subdivisions, by any agency, department, office, authority, or other instrumentality of a State, any political subdivision of a State, one or more political subdivisions of a State, or a State and one or more of its political subdivisions, or by any other entity eligible to issue bonds the interest on which is excludable from gross income under section 103 of the Internal Revenue Code of 1986.
The term includes any city, county, town, township, parish, village, or other general purpose political subdivision of a State and any school, utility, fire, or tax district, or other special purpose political subdivision of a State.
The term means the Secretary of the Treasury.
The term means the States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, the Virgin Islands, American Samoa, and any other territory or possession of the United States.
Authorization of appropriations
There are authorized to be appropriated to the Secretary for carrying out this title such sums as may be necessary for each fiscal year.
September 9, 2008
Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed
GovTrack helps everyone learn about and track the activities of the United States Congress. Launched more than 20 years ago, we’re one of the oldest government transparency and accountability websites on the Internet.
This is a project of Civic Impulse, LLC. GovTrack.us is not a government website.