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...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signatur:
DS 711
Fernleihe:
keine Fernleihe
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.
Verlag:
Federal Reserve Bank of Chicago, [Chicago, Illinois]
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...
mehr
ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signatur:
DS 244
Fernleihe:
keine Fernleihe
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 have obtained 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.
