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Working Paper

The Determinants of Commercial Bank Holdings of Municipal Securities: 1985-1988

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This paper presents an empirical analysis of commercial bank holdings of municipal securities (munis) from June 1985 through December 1988, using the FFIEC’s Reports of Condition and Income. While motivated by previous analyses suggesting that a shift from munis to taxable securities is a primary determinant of the overall impact of the Tax Reform Act of 1986 on bank profitability, this paper does not directly analyze the impact of that legislation. However, the paper modifies the specification of muni demand employed in previous analyses to consider roles for state pledging requirements, realization of capital gains or losses, and the simultaneous provision for loan losses. The results provide some support for including state pledging requirements, realization of capital gains and losses, and the loan loss provisions in analyses of muni holdings.
01.01.1990ISSN 2573-7953 WP 90-01DOI 10.26509/frbc-wp-199001

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Osterberg, William P. 1990. “The Determinants of Commercial Bank Holdings of Municipal Securities: 1985-1988.” Federal Reserve Bank of Cleveland, Working Paper No. 90-01. https://doi.org/10.26509/frbc-wp-199001