Claim Dilution in the Municipal Debt Market

40 Pages Posted: 8 Feb 2018 Last revised: 29 Apr 2020

See all articles by Ivan Ivanov

Ivan Ivanov

Federal Reserve Bank of Chicago

Tom Zimmermann

QuantCo, Inc.; University of Cologne

Multiple version iconThere are 2 versions of this paper

Date Written: February, 2018


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.

JEL Classification: G3, G1

Suggested Citation

Ivanov, Ivan and Zimmermann, Tom and Zimmermann, Tom, Claim Dilution in the Municipal Debt Market (February, 2018). FEDS Working Paper No. 2018-11, 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

QuantCo, Inc. ( email )

University of Cologne ( email )

Cologne, 50923

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