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Study suggests potential bond savings to cities

City governments might be able to save from $80 million to $369 million in borrowing costs if commercial banks were eligible to underwrite revenue bonds. These figures were released by York University's Salomon Brothers Center for the Study of Financial Institutions.

Allowing for differences in data and methods of evaluating the figures, a somewhat narrower range of between $150 million and $300 million a year is probably a better estimate of the savings to issuers, the study says. This range translates into a reduction of between 1.1 and 2.2 percent of borrowing costs when municipal bond yields are at 6 percent.

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The study raises the question of whether the 1933 Glass-Steagall Act should be amended to permit commercial banks to underwrite additional types of municipal revenue bonds beyond those authorized by the Housing Act of 1968.

The study suggests that bank eligibility to underwrite revenues could reduce both the underwriting spread and the reoffering yields on currently ineligible municipals.


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