Muniland continues to shrink, except for one small corner, seen in the fourth chart below. The charts are from SIFMA’s US Municipal Credit Report, First Quarter 2014:
There is one corner of the municipal market that is increasing in size — bank loans to state and local governments. I wrote previously about the estimates that Standard & Poor’s has made on the bank loans that municipal issuers have taken out:
Standard & Poor’s recently issued a comment piece that sheds more light on the shrinking municipal issuance story. They reviewed or rated 173 direct loan municipal deals totaling about $10.4 billion from 2011 through February of this year. After seeing these deals and talking with market participants, they estimate that direct bank loans to muniland might account for as much as 20 percent of new municipal borrowing.
Here is data from the FDIC and the Federal Reserve in the SIFMA report that appears to confirm Standard & Poor’s estimates:
Municipal bond issuance continues to shrink, but bank borrowing by municipalities is rising. I’ve suggested that the U.S. is creating the same problem that China is now trying to climb out of. Municipal issuers are taking loans that the public does not know about. Of course, I don’t expect Congress to do anything proactively about this issue. For anyone to pay attention, the undisclosed bank loans of a state or a city will have to blow up.