Capital market instruments in the financing of local government units

The aim of the article is to indicate the organised capital market as a place for raising capital for local government and municipal companies; the scope of regulations and knowledge about the capital market for local government units is presented, including studies on the assessment of factors affecting the development of LGUs using the issue of municipal bonds in the capital market.

Regulatory Treatment of Changes in Fair Value and the Composition of Banks' Investment Portfolios

In the wake of the financial crisis of 2007-2008, Basel III recommended that bank regulators include changes in the fair value of available-for-sale (AFS) debt securities in Tier 1 capital. However, the U.S. implementation allowed smaller banks to continue excluding these changes through a one-time opt out election. This paper investigates a potential impact of this opt out provision by examining the investment decisions of smaller banks in the 1990's when changes in the fair value of AFS debt securities were temporarily included in regulatory capital. Using a sample of smaller banks and a difference-in-differences research design, we find that low-capitalized banks reduced their investments in more volatile asset classes (e.g., corporate bonds, non-agency MBS) and increased their investments in less volatile asset classes (e.g., treasuries and municipal bonds) after changes in fair value were included in regulatory capital. These findings suggest that providing smaller banks with an opt out election potentially allows low-capitalized, riskier banks to continue to hold more volatile securities in their AFS portfolios.

Price distortions and municipal bonds premiums: evidence from Switzerland

This study examines the pricing of municipal bonds before and after a currency shock in Switzerland. Two approaches are used to decompose the municipal to treasuries bond spreads into liquidity, maturity, and default risk premiums. The first approach is the model of the cross-sectional instrumental variables, and the second approach is the model of the instrumental variables with panel data. This study examines the composition of spreads for both approaches, in three scenarios: before, throughout, and after the currency shock. The study performed Durbin-Wu-Hausman tests for each decisive model to verify endogeneity issues, including the Lagrangian Multiplier test, the Cragg-Donald Wald F statistic to confirm the relationship of instrumental and endogenous variables, and the structural break test (Bai-Perron test) to determine the existence of structural breaks in bond distortions. This study finds that the currency price distortions of the Swiss franc in January 2015 made long-run changes in the composition of the municipal bond spreads. This research contributes to the understanding of municipal bond pricing by showing that default risk accounts for a large portion of the municipal bond spread, while maturity risk plays a lesser role. According to our empirical findings, unexpected large currency price shocks may have long-term implications on the municipal bond spreads.

Municipal Bonds as a Financial Component of the Development of Territorial Communities in Ukraine

The world economic thought has a number of tools, the use of which helps attract financial investment and helps accumulate additional funds for infrastructure and social projects of municipalities. The issue of municipal bonds as a financial component of the development of territorial communities is considered vital for this research in which the factors that determine the ability to borrow are highlighted. The advantages and disadvantages of using municipal bonds by local governments are also identified. It is realized that the world experience in the application of municipal bonds is contradictory and ambiguous. It is established that the best results from the use of bonds have been the municipalities of countries with a high level of development and municipal management, which determines the demand for this type of securities from investors. The use of municipal bond in countries with economies in transition has led to a number of municipal defaults, resulting in severe restrictions on their issuance by central authorities. The united communities of Ukraine require additional financial resources. Smaller municipalities are characterized by a high rate of budget subsidies and low average income per community. Ukrainian territorial communities’ municipal bonds are used insufficiently in comparison to developed industrial countries. Factors that shape the risks of implementing a system of local borrowing in Ukraine are identified and include lack of recognition and registration of local governments as legal entities under public law, imperfection of legislation, lack of experience in local borrowing, lack of clear information about the available resources of local communities and their valuation.

"THE DETERMINANTS OF THE MUNICIPAL BONDS MARKET IN ROMANIA"

"Municipal bonds are widely issued by local municipalities as a feasible financial alternative to fund infrastructure projects. On the other side, from the investors’ perspective, bonds issued by municipalities have historically been a popular investment option due to often favorable tax treatment for investors as well as the issuer’s credibility and generally high credit quality of the market. The paper explores the factors that influence the size and interest rates of Romanian municipal bonds for a 20 years period starting from 2001, when the first issuance took place, to the present. The data collected were analyzed through multiple linear regressions using ordinary least square estimator. The results revealed that municipalities with large populations, higher levels of income and expenses, and longer maturity tended to issue more municipal bonds. On the other hand, the unemployment and inflation rates increased the interest rates. The regions, fund destinations, and political variables also influenced the levels of bonds issued as well as the interest rates. These findings illustrated the importance of the context at local and national level, expressed by different social, economic and political variables that local governments should consider when issuing municipal bonds. The study contributes to the development of knowledge in the area of issuer’s characteristics and, moreover, the political, economic, and financial setting influences on the municipal bond market in an emergent country from Eastern Europe, Romania."

Rethinking the Concept of Municipal Bonds to Improve Urban Governance in India

The pace of urban development in India has been slow, unorganised and unorderly as a result of inadequate planning and implementation of projects, mismanagement and misutilisation of funds, bureaucracy in the decision-making process and the reliance of urban local bodies on traditional forms of financing such as taxes and government grants. These factors not only restrict effective urban governance and development, but also create several dilemmas for comparatively modern and efficacious forms of urban financing. A perfect example of this is the unattractiveness and underutilised potential of municipal bonds for urban financing despite the fact that it was introduced in India in the year 1997. In pursuance of the above, this article aims to identify the problems associated with urban financing through municipal bonds and also makes an attempt to provide solutions which will not only help in creating a more reliable and effective form of urban financing for urban local bodies but also improve urban governance and permit the general public to invest in urban infrastructure development activities. JEL codes: K220, R510

MUNICIPAL INFRASTRUCTURE PROJECT IN THE DEVELOPMENT OF INFRASTRUCTURE IN KAZAKHSTAN

The study focuses on the financing of infrastructure projects using municipal bonds. Originality of the research. The article considers a set of measures designed to activate the process of attracting investment in infrastructure at the municipal level using bonds. The parameters of securities issues of concessionaires were studied, and the experience of managing municipalities with securities as an element of debt policy was analyzed. Research result. The results of the research can be useful both in developing the financial policy of the state management of spatial development at the national and regional levels, and in conducting further research on the activation of the investment process in Kazakhstan at the municipal level.