Securities & Investments
Municipal Securities
Also known as Munis
Municipal Securities are debt issued by state and local governments and their agencies. Most pay interest exempt from federal income tax, making them particularly attractive to banks with taxable income.
Formula
The call-report taxonomy splits munis into general obligation (GO) bonds, revenue bonds, and industrial development bonds. Both AFS and HTM treatments are used. Banks must also report whether the issuer is bank-qualified (BQ), which carries a different cost-of-carry treatment for the bank.
Why it matters
Tax-equivalent yields on munis often exceed similar-duration Treasury yields for taxable corporate buyers. Banks remain large structural buyers. The market also carries genuine credit risk — Detroit (2013), Puerto Rico (2017), and Jefferson County (2011) produced material recoveries below par.
How to interpret
Munis / Securities Portfolio above 25% signals meaningful tax-strategy reliance; below 5% suggests a credit-risk-averse or taxable-yield-preferred stance. Credit quality and geographic concentration matter as much as absolute share — a portfolio concentrated in one state can carry idiosyncratic risk.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| > 25% | Heavy | Active tax-yield strategy. |
| 10–25% | Active | Established muni allocation. |
| 5–10% | Light | Modest muni participation. |
| < 5% | Minimal | Taxable-yield or credit-risk-averse stance. |
Worked example
Frequently asked
What is a bank-qualified municipal bond?
A bond issued by a small issuer (under $10M of qualifying bonds per year) that lets banks deduct 80% of the cost of carry. Non-bank-qualified munis face full TEFRA disallowance, materially reducing after-tax yield.
Are munis credit-risk-free?
No. While default rates on investment-grade munis are below 1% historically, recovery rates in defaults vary widely. Detroit GO bonds recovered roughly 74 cents; some Puerto Rico bonds recovered below 40 cents. Credit quality varies enormously by issuer and bond type.
Why did muni demand fall in 2024-2025?
Higher Treasury yields reduced the relative attractiveness of tax-exempt yields. The 2017 corporate tax-rate cut from 35% to 21% also permanently reduced the value of muni tax-exemption for bank buyers, shrinking long-run demand.
Sources
- FFIEC Call Report Schedule RC-B Lines 3 & 5
- MSRB EMMA system — municipal-securities trade and disclosure
See Munis across 4,335 US banks
BankRegReports ranks every FDIC-insured institution by Munis, refreshed quarterly within 48 hours of FFIEC release.