A Municipal Debt Market Governance Framework: A Balancing Act with Competing Objectives

Regulating financial markets requires balancing competing policy objectives. The goal of this article is to define the core objectives and discuss the inherent tradeoffs in the regulatory framework for the municipal debt market in the United States. The authors argue that an ideal governance framework consists of a balance between four objectives: transparency, safety and soundness, innovation, and market competitiveness. The municipal debt market is an excellent sector to explore governance choices because it is often characterized as opaque, illiquid, and under-regulated. This reputation is in part due to the lack of a municipal securities exchange that centralizes information and that falls within the purview of a single governance system. Instead, the municipal debt market is contingent on a complex multilevel system of institutions composed of federal, state, and self-governing organizations. By understanding the core objectives and tradeoff dilemmas, scholars and policymakers can more accurately assess the current regulatory balance and the impact of future changes.