Claim Dilution in the Municipal Debt Market

40 Pages Posted: 8 Feb 2018

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: 2018-02-05


Using loan-level municipal bank lending data, we examine the debt structure of municipalities and its response to exogenous income shocks. We show that small, more indebted, low-income, and medium credit quality counties are particularly reliant on private bank financing. Low income counties are more likely to increase bank debt share after an adverse permanent income shock while high income counties do not shift their debt structure in response. In contrast, only high income counties draw on their credit lines after adverse transitory income shocks. Overall, our paper raises concerns about claim dilution of bondholders and highlights the importance of municipal disclosure of private debt.

Keywords: Bank lending, Claim dilution, Disclosure, Municipal finance

JEL Classification: G3, G1

Suggested Citation

Ivanov, Ivan and Zimmermann, Tom, Claim Dilution in the Municipal Debt Market (2018-02-05). FEDS Working Paper No. 2018-011. 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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