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SEC says cities, states must now disclose bank loans

WASHINGTON -- The Securities and Exchange Commission took a first step toward shedding light on loans from banks to states and localities that are increasingly being used to finance infrastructure projects, rather than issuing debt in public markets.

The SEC on Wednesday unanimously voted to propose new requirements that state and local governments disclose the details of the bank loans, helping to illuminate a corner of the nearly $4 trillion municipal-bond market where there is currently no consistent reporting.

States and localities looking to fund projects such as roads, schools and bridges are turning to bank loans for cheaper financing in recent years. Such loans total roughly $40 billion to $50 billion in annual issuance, according to consulting firm Municipal Market Analytics. Bank loans are cheaper than issuing debt in the public markets in part because they don’t require a rating, which can cost a municipality tens of thousands of dollars, and typically don’t carry the same disclosure requirements.

Investors currently “may have limited access, or substantially delayed access, to information about these nonpublic financings,” SEC commissioner Kara Stein, a Democrat, said ahead of the vote.

The SEC will seek public comment on Wednesday’s proposal for 60 days. After the comment period, the agency would have to vote on the measure before it could go into effect.