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Abstract: 

Direct commercial bank investment in municipal bonds has broad implications beyond the sheer amount of holdings by this market segment. The growth in bank loans to municipalities raises questions of issuer disclosure to potential investors and credit raters and the role, if any, of securities regulation. Finance professor Daniel Bergstresser and finance entrepreneur Peter Orr mine historical bank Call Report data and aggregate Federal Reserve Board data to characterize this market. Their research shows a persistence of bank holding shares over time, despite the remarkable growth rate, and an emerging correlation between bank equity returns and short-term municipal market returns. Is there an optimal level of municipal fiscal transparency? Answering this question requires a specification of the institutional rules that define issuer transparency. Tiankai Wang, an information scientist, joins with political scientist Patricia Shields and accounting instructor Yangmei Wang to test the impact of an adapted fiscal ransparency index on the borrowing cost of states. Their work shows that initially borrowing costs fall with transparency but that at a point, additional transparency (as measured here) leads to increased borrowing costs. Communities use development districts to finance infrastructure for new development. Public finance banker Nathan S. Betnun traces the recent history, and defaults, of land-secured bonds and tax increment bonds by state. Particular attention is paid to California, which dissolved redevelopment agencies in 2012.

Keywords: direct bank investment, loan vs. security, tax increment financing, land-secured bonds, borrowing cost, fiscal transparency index

Affiliations:  1: Georgia State University.