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WASHINGTON — Investment banks would be required to disclose contributions they make to municipal bond ballot drives under a proposal to be announced Monday by an industry regulator.
The move is the latest effort by the Municipal Securities Rulemaking Board, an industry self-regulatory body, to eliminate the appearance of improper relationships between banks that help sell municipal bonds and the government officials who decide to offer them.
About $400 billion of muni bonds are issued every year to finance the building of schools, roads and other public infrastructure. Many cities and states require a referendum be held before the bonds can be issued. The votes are frequently preceded by public campaigns.
"The Board is concerned that the private nature of such political contributions by dealers is negatively affecting the integrity of the market," said Lynette Kelly Hotchkiss, executive director of the MSRB.
The increased disclosure will shed light on whether companies that contribute to bond campaigns are more likely to win related business, Hotchkiss said.
That information could lead the MSRB to propose restrictions on the contributions in the future, she added.
The proposal would amend a current rule that already limits the ability of investment banks to contribute directly to political campaigns. The board will seek public comment on the proposed amendment for several months.
The rule would affect roughly 50 to 60 banks and other firms that underwrite muni bonds, Hotchkiss said, including Citigroup, Morgan Stanley, and Goldman Sachs Group Inc.
Matt Fabian, managing director of Municipal Market Advisors, said the proposed amendment is a good one.
But he noted that it comes as the Securities and Exchange Commission has expressed interest in cracking down further on so-called "pay to play" relationships between investment banks and government officials.
In addition, the SEC, FBI and IRS for years have been looking into whether financial firms have bribed officials or illegally steered business to particular brokers.
