The federalist framework: fiscal sovereignty, federal regulation, and disclosure

This chapter reviews how the fiscal federalist structure has affected the way the municipal securities market regulatory framework has developed. The US federalist system provides a legal framework that has resulted in a complex, disjointed regulatory web across the states and across multiple levels of government. The regulatory structure amplifies the diversity and complexity of the marketplace. The federal government exercises overall responsibility for US financial markets, and over the twentieth and into the twenty-first century has expanded its direct regulatory control over most financial markets, except for direct control of municipal issuers. Traditionally the federal government's involvement was mostly intended to limit their exposure to tax expenditures resulting from the tax exemption of municipal securities, but now the federal government does have more extensive involvement in the municipal market. This chapter covers this growing involvement with our discussion of Dodd-Frank, municipal financial advisors, the credit rating industry, and continuing disclosure and post-issuance requirements.