The 'Privatization' of Municipal Debt

84 Pages Posted: 20 Oct 2017 Last revised: 27 Jul 2023

See all articles by Ivan Ivanov

Ivan Ivanov

Federal Reserve Bank of Chicago

Tom Zimmermann

University of Cologne; QuantCo, Inc.

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2023


We study the determinants of local governments' reliance on bank loans using granular data from the Federal Reserve. Governments that are larger, rely on stable revenue sources, or have higher spending relative to revenues are more likely to borrow from banks. About a third of governments in the top revenue quintile obtain bank loans since 2011, typically accounting for a fifth of their total debt. Declines in revenues, reductions in bond market access, agency rating downgrades, and relationships with financial advisers and underwriters all strongly predict higher bank loan reliance. While resemblance between bank loans and bonds is limited, loans afford governments significant financial flexibility not otherwise available in the municipal bond market. The frequent loan renegotiation and credit line use are both highly responsive to changes in credit quality, thereby tailoring debt contracts to changes in government fundamentals.

Keywords: local government borrowing, debt heterogeneity, fiscal shocks

JEL Classification: H74; G21; G32

Suggested Citation

Ivanov, Ivan and Zimmermann, Tom and Zimmermann, Tom, The 'Privatization' of Municipal Debt (July 20, 2023). Available at SSRN: or

Ivan Ivanov (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States


Tom Zimmermann

University of Cologne ( email )

Cologne, 50923

QuantCo, Inc. ( email )

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