A bipartisan group of senators are set to introduce legislation that would effectively open the door for big U.S. banks to count municipal bonds as liquid assets.  The Senate legislation would place municipal bonds on the lowest rung of the “high quality liquid assets” category – meaning that they would be treated on par with corporate bonds, but not as favorably as under related legislation approved by the House early this year.

Aides to Senate lawmakers say their bill was scaled back from the House version to gain broad support for it in the Senate, though it is unclear if there is sufficient time in the remaining year to advance the bill.

The rules, slated to go into effect next year, are aimed at making banks hold more cash or securities that are easy to sell. The Federal Reserve and two other bank regulators had originally decided debt issued by states and localities didn’t make the cut - prompting a backlash from banks, lawmakers and states and localities who warned the move would make the bonds less attractive and raise borrowing costs for municipalities.

Municipal officials have generally applauded the Fed’s willingness to make changes to the rules but say legislation is necessary, largely because banking firms typically hold municipal debt in units that are overseen by the other policy makers involved in the rules, particularly the OCC, which regulates national banks.