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An Appraisal of the Interest Cost Savings of State Bond Banks

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  • Paul L. Solano

Abstract

State bond banks finance loans of small governments (participants) by selling large issues in the municipal bond market. Interest cost savings are expected through the lower interest costs paid by participants for their loans than for their bond issues. This study estimates savings for several types of alternative participant sales using data—24 years, 91 sales, and 1,576 loans—from the Maine, New Hampshire, and Vermont bond banks. A conservative perspective indicates that savings were generated for 87% of all loans, an average gain of 79 basis points, with 60% of all loans saving between 26 and 100 basis points.

Suggested Citation

  • Paul L. Solano, 2005. "An Appraisal of the Interest Cost Savings of State Bond Banks," Municipal Finance Journal, University of Chicago Press, vol. 25(4), pages 13-48.
    • Handle: RePEc:ucp:munifj:doi:10.1086/mfj25040013
    DOI: 10.1086/MFJ25040013
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