The "Privatization" of Municipal Debt

Ivan T. Ivanov () and Tom Zimmermann
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Ivan T. Ivanov: Federal Reserve Board, 20th Street and Constitution Avenue NW, Washington, DC 20551

No 62, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: Using confidential loan-level data, we investigate the importance of bank loans in the debt structure of U.S. state and local governments. We show that most bank debt is closely substitutable with municipal bonds and that smaller, lower-income and less credit-worthy borrowers are more reliant on bank borrowing. Moreover, we document a sizable difference in the maturity structure of bonds and loans that allows municipalities to save on interest costs but that could also lead to diluting bondholders' claims. Such dilution concerns are amplified by governments substantially increasing bank borrowing in response to credit quality deterioration. This suggests the upward trend in bank borrowing will likely persist if fiscal positions continue to decline.

Keywords: state and local government debt; debt heterogeneity; fiscal shocks (search for similar items in EconPapers)
JEL-codes: F18 H6 M41 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2021-02
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_062_2021.pdf First version, 2021 (application/pdf)

Related works:
Journal Article: The “Privatization” of municipal debt (2024)
Working Paper: The "privatization" of municipal debt (2024)
Working Paper: The “Privatization” of Municipal Debt (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:062

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