Fed Pushed to Loosen Reins on Nearly Untapped Muni Program (1)

The Federal Reserve is facing pressure to loosen the rules on its $500 billion municipal lending facility, which charges penalties so steep that almost no governments are willing to borrow from it.

A group of state treasurers, local officials and advocacy groups including Americans for Financial Reform, a Washington-based advocacy group, sent the central bank a letter on Tuesday requesting that it significantly cut the interest rates it charges on loans. The groups also asked it to lend for longer terms and expand the number of governments that are eligible to borrow.

The Fed announced the Municipal Liquidity Facility in ...