The 'Privatization' of Municipal Debt

57 Pages Posted: 20 Oct 2017 Last revised: 14 May 2019

See all articles by Ivan Ivanov

Ivan Ivanov

Board of Governors of the Federal Reserve System

Tom Zimmermann

QuantCo, Inc.; University of Cologne

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Date Written: May 12, 2019


U.S state and local governments are increasingly turning to bank financing amid deteriorating fiscal positions. We document that the maturity and collateral structure of municipal bank loans allows borrowers additional debt capacity by diluting outstanding long-term bonds. Specifically, most municipal bank borrowers obtain loans with shorter maturities than long-term outstanding bonds, also providing municipalities with significant interest cost savings. Last, we show that municipalities substantially increase bank borrowing and decrease municipal bonds issuance in response to exogenous adverse income shocks. This suggests the upward trend in bank borrowing will likely persist if fiscal positions continue to decline.

Suggested Citation

Ivanov, Ivan and Zimmermann, Tom, The 'Privatization' of Municipal Debt (May 12, 2019). 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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