UPDATE 1-U.S. banking regulators ease liquidity rules for municipal securities

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WASHINGTON, Aug 22 (Reuters) - U.S. banking regulators said on Wednesday they were easing liquidity rules on the treatment of municipal securities, allowing banks to count more of the assets toward certain liquidity requirements.

The interim final rule allows banks to treat "investment grade" municipal securities as "high quality liquid assets," similar to cash and U.S. Treasury bonds, in order to comply with rules requiring banks to hold easily sold assets as a cushion against future downturns. The regulatory change was mandated by a law easing bank rules signed by President Donald Trump in May.

The change, one of the first by regulators implementing that law, should help banks that are heavy investors in municipal debt, including large companies like Citigroup, by allowing them to count more types of investments toward liquidity requirements. State and local governments also pushed for the relaxed treatment of municipal securities while Congress considered the law to ensure the debt remained attractive to banks.

Under the change, municipal securities can be counted toward calculating a bank's liquidity coverage ratio so long as they are "investment grade" and "liquid and readily-marketable."

The change was jointly announced by the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency. It will take effect immediately once it is published in the Federal Register in the coming days. (Reporting by Pete Schroeder; Editing by Leslie Adler)