The 'Privatization' of Municipal Debt

42 Pages Posted: 20 Oct 2017 Last revised: 8 Feb 2021

See all articles by Ivan Ivanov

Ivan Ivanov

Board of Governors of the Federal Reserve System

Tom Zimmermann

QuantCo, Inc.; University of Cologne

Multiple version iconThere are 2 versions of this paper

Date Written: February 7, 2021


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 governments' debt, debt heterogeneity, fiscal shocks

JEL Classification: H74; G21; G32

Suggested Citation

Ivanov, Ivan and Zimmermann, Tom and Zimmermann, Tom, The 'Privatization' of Municipal Debt (February 7, 2021). Available at SSRN: or

Ivan Ivanov (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Tom Zimmermann

QuantCo, Inc. ( email )

University of Cologne ( email )

Cologne, 50923

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