Municipal loan
A municipal bond ( English Municipal bond ) is a public bond , by a local authority below the country level - in Germany from a city or municipality - emitted is (spent).
General
In Germany, municipal bonds are to be distinguished from municipal bonds . In the case of municipal bonds, the borrower is the municipality ; in the case of municipal bonds, however, the issuing Pfandbrief bank . For the investor , the risk of municipal bonds is better distributed through diversification in municipal loans to a large number of municipal borrowers (see cluster risk and granularity ), whereas with municipal bonds he is only faced with one borrower.
The municipal loan market has narrowed increasingly since 2010; the liquidity and willingness to grant municipal lending in the market is decreasing, because credit institutions with Pfandbrief banking licenses are withdrawing or offering more selectively. The main reason is that large-volume, low-risk transactions - such as municipal loans - lead to a less favorable unweighted equity ratio. Since January 2014, municipal loans have to be included in the unweighted equity ratio, so that an indirect equity burden occurs for the first time . Also see many banks in the partially critical creditworthiness situation of many municipalities an increased credit risk .
history
Municipal bonds were common in the early days and the Weimar Republic, especially in the form of city bonds . The city of Cologne took its first known loan in 1321 from the Rheinbacher Joseph von Ahrweiler and Salomon von Basel (Salman Unkel), who were granted customs at the Bayenturm as collateral . Leipzig is considered a pioneer of modern city bonds , which brought city bonds onto the market in August 1807 and January 1831. This was followed by Hamburg (1875 and 1876), Berlin (1882), Bingen (1889), Nuremberg (1896) and Cologne (1900) , among others .
The city bonds meant the consistent transfer of the financial instrument of state bonds and federal bonds - in which the states and the federal government act as debtors - to the smallest regional authorities . With the spread of municipal loans granted by credit institutions, city and other municipal bonds were on the decline, while state and federal bonds were not. After a long time, the city of Munich issued one of the first city bonds in December 1994 , followed by Hanover (November 2009), Essen (February 2010), Nuremberg / Würzburg (May 2013) and Mainz (November 2013). In February 2014 the cities of Essen (28% bond share), Dortmund and Wuppertal (20% each), Remscheid (18%), Herne (8%) and Solingen (6%) took a joint "NRW city bond 1" of 400 million euros, the largest German municipal bond of all time. This was followed in February 2015 by the “NRW-Städteanleihe 2” for 500 million euros and in June 2015 the “NRW-Städteanleihe 3” for 250 million euros. At first glance, this form offers investors a certain diversification, but the cities in the bond basket predominantly have an unattractive credit rating. Since there are no ratings from rating agencies , it is left to the bondholder to determine the creditworthiness and probability of default of each individual city proportionally. As in the case of the country jumbo , each city is only liable for its own fixed share and is not jointly liable for the other cities.
Banking aspects
Like any other issuer , German regional authorities, as issuers of municipal bonds, would have to be given an issuer rating by a rating agency. The banking supervisory legal risk weight of 0% for own resources (Art. 114 para. 4 and Art. 115 Kapitaladäquanzverordnung ) makes a rating not dispensable, because the zero-credit subject to EU Member States are at their government bonds rated. As there are only a few current municipal bonds on the market that have been placed exclusively with institutional investors , there was no (external) municipal rating for them.
German bonds municipalities as a national regulatory municipality ( English domestic municipality treated). According to the European Banking Authority (EBA), issues of German domestic municipalities are classified as federal securities . For this reason, they are given a risk weight of 0% within Directive 2013/36 / EU (Equity Capital Directive) and are assessed as level 1 assets in the liquidity coverage ratio . The stress factor for the spread risk and the concentration risk under Solvency II is also 0%.
The rating agency Fitch Ratings acquired in 2008 from the Federal Statistical Office , the financial data from 12,304 German municipalities (including counties and municipalities) and has applied for 11,426 communities one of six rating categories created existing individual rating. These ratings are intended to open the way for municipalities to put bonds on the market themselves. However, Fitch's municipal rating lacked important financial data such as cross-border leasing and interest rate derivatives . Fitch considers these financial instruments to be “disadvantageous” for municipalities and assumes that they would have “led to not inconsiderable contingent liabilities and an additional burden for the already desperate households”. In addition, with the shadow households and shadow debt, important debt factors are missing , because borrowing from municipal subsidiaries such as municipal utilities or waste disposal companies is not included in the core budget.
Risks
With municipal bonds, there are four major risks for investors , which can also occur cumulatively.
- Credit risk : It occurs when the obligor interest payment or repayment can not provide all or part of. This creditor risk is lower for covered bonds such as Pfandbriefe and municipal bonds , but not completely eliminated. Municipal bonds are unsecured bonds.
- Interest rate risk : This risk arises for the investor if the current interest rate level exceeds the return (also approximately: the nominal interest rate ) during the term of the bond.
- Exchange rate risk : This arises for investors who believe that the bond currency (here usually the euro) is a foreign currency if the exchange rate falls below the original acquisition rate during the term of the bond.
- Inflation risk: This risk occurs if inflation turns out to be higher than expected during the term of the bond. It's the uncertainty about the real size of future payouts. It is to be assessed separately from the interest rate risk, because the Fisher effect can only be empirically proven in the long term. This risk is eliminated with inflation-indexed bonds .
These risks lead to the classification of a bond in a certain risk class .
International
City bonds are particularly popular in Scandinavia , for example in Copenhagen , Oslo and Stockholm . In Switzerland, Bern , Geneva , La Chaux-de-Fonds and Zurich issue such bonds. At 45 years, Rome has one of the longest loan terms ever. Outside of Europe there are city bonds in Buenos Aires and Tokyo , among others ; Rio de Janeiro issued a city bond as a perpetual annuity in April 1912 .
In the US municipal bonds are called English "Municipal bonds" (in short "munis"). Largest qualitative difference to the comparable German bonds is the fact that local governments in the US bankruptcy are able and some after Chapter 9 USCC (US Insolvency Act; US bankruptcy code ) to bankruptcy proceedings. The city of New York City issued the first municipal bonds as early as 1812 . In the USA, financing is not typically provided through bank loans , but through public “municipal bonds”, which come in various forms. The "general obligation bonds" are by non-dedicated ( English non-restricted ) tax revenues covered, so-called "revenue bonds", however, are certain ( English restricted ) tax revenues or tolls repaid . The more tax revenue for the debt service use the "revenue bonds", the less available for "general obligations" and vice versa are available. The creditor risk can consist in the fact that the sources of income for the "general obligation bonds" in favor of the "revenue bonds" are so badly eroded that no free tax revenue is available for the repayment of the "general obligation bonds" and then the "municipality" ( Municipality) could file for bankruptcy. This is particularly true in the context of a recession , when tax revenues decline.
There is no formal domestic counter-liability system which, for example, would have to justify or trigger an automatic occurrence by the state levels higher than a municipal debtor. The existing financial equalization system is not able - nor is it intended - to mitigate or mitigate spectacular municipal undesirable developments such as New York City (October 1975), Orange County (December 1994), San Bernardino (June 2012) or Detroit (July 2013) to prevent at all. Highly indebted municipalities are subject to a risk of bankruptcy from Chapter 9 of the US Bankruptcy Code, which provides for the “municipalities” under a state as the norm addressee . Here, US communities are protected during the restructuring phase and continue to exist after reorganization so that they can continue to carry out their community tasks. Compared to corporate bankruptcies, the number of bankruptcies with around 500 municipal bankruptcy proceedings since 1934 on the basis of Chapter 9 - compared to all US bankruptcies - is relatively low, but municipal bankruptcies are possible and have occurred. Here, the municipal debtor is protected from insolvency law access by his creditors and must work out a restructuring program that can also include debt relief . Usually the largest groups of creditors are affected, namely banks , institutional investors , suppliers and retirees . This means that municipalities and individual bonds are subject to the risk of insolvency. Today's Chapter 9 is the result of a change in law made in 1978 due to the serious financial crisis in New York City in 1975, for which the application of the old Chapter 9 proved unsuitable. Another change from 1988 deals with the exclusion of "revenue bonds" and the types of taxes and charges that "secure" them. "Revenue bonds" may, according to an exception, still be served if Chapter 9 has been imposed on the municipality. Then it can generally stop its payments, but at the same time the "revenue bonds" must continue to be serviced.
Highly indebted US municipalities do not receive any disproportionate state transfer payments through the financial equalization , but have to improve their financial situation themselves (principle of subsidiarity). If this does not succeed, the legislature has provided Chapter 9, a specific bankruptcy protection variant especially for municipal divisions. According to this, municipal creditors must, in the worst case, even expect a bad debt loss within the restructuring . For this reason, there is the possibility of "municipal bonds" an insurance against late payment and default ( English default ) of the issuer by a monoline to subdue. The Municipal Bond Insurance Association was founded specifically for this purpose in 1974 . If a monoliner with a better rating guarantees “municipal bonds” with a lower rating, these will receive the guarantor's better rating as part of the surety substitution.
In the last 40 years in particular, municipal bonds have become an important means of public funding. While in 1975 municipal bonds issued US $ 26.0 billion, the issue volume for 1999 was US $ 263.8 billion. During the global financial crisis from 2007 onwards , the issuing volumes in 2007 and 2010 reached peak values of up to US $ 429.3 billion (2007) and US $ 433.0 billion (2010). In 2011 the issue volume was US $ 294.6 billion. The 1st quarter of 2012 shows a significant increase of US $ 78.6 billion compared to the 1st quarter of 2011 (US $ 47.9 billion). The holdings of open municipal bonds increased almost tenfold from 1980 (US $ 399.4 billion) to 2011 (US $ 3,743.3 billion). In the US, around 95% of municipal bonds are rated.
"Muni (cipal) bonds" are mostly exempt from municipal or state income taxes. Exhibitors are cities, government agencies , special purpose vehicles , school districts , ports . With these "Munis", the issuers finance specific projects, especially the infrastructure such as roads, highways, bridges and airports. In addition to financing electricity power plants, renewable energies are now also being promoted.
See also
literature
- Christian Limbach: Climate Bonds - municipal bonds: Analysis of the potential for financing the energy transition at the municipal level. 2013, ISBN 978-3-86924-507-2 .
Web links
Individual evidence
- ↑ Deutsche Bundesbank: Basel III - Guide to the new capital and liquidity rules for banks , September 2011, p. 28.
- ^ Walter Stein: Files on the history of the constitution and administration of the city of Cologne in the 14th and 15th centuries , Volume 1, 1993, p. XI.
- ↑ Jan A. van Houtte (Ed.), European Economic and Social History in the Middle Ages , Volume 2, 1980, p. 587.
- ↑ Leipziger Zeitung No. 102 of May 1, 1829, p. 1125
- ^ Fitch Ratings of February 19, 2009, International Public Finance: Germany Special Report, German municipalities - important role in the federal system
- ↑ Werner Rügemer: Rating Agencies: Insights into the Capital Power of the Present , 2012, pp. 84–85.
- ↑ Fitch Ratings of February 19, 2009, International Public Finance: Germany Special Report, German municipalities - an important role in the federal system , p. 5.
- ↑ Ulrich Becker: Lexikon Terminhandel , 1994, p. 437.
- ↑ Thomas Wolf: The assessment of communal capacity to act by rating agencies , 2006, p. 13.
- ↑ a b Christian Limbach: Climate Bonds - Municipal bonds: Analysis of the potential for financing the energy transition at municipal level , 2013, ISBN 978-3-86924-507-2 .
- ↑ Reto R. Gallati: Interest-bearing securities , 2011, p. 172.