Bond Economics (Brian Romanchuk)

Public Banks And Municipal Bonds

The article critiques the notion that municipal governments can substantially expand fiscal space by having local public banks purchase their own bonds. It argues that a new bank must first raise equity, limiting its initial balance sheet, and that banks face liquidity and duration mismatches with illiquid municipal securities. The author contrasts the limited U.S. model with Quebec’s Caisse de dépôt et placement du Québec, where pension‑fund assets provide a more viable source of demand for sub‑national debt. Ultimately, the piece warns that concentrating local debt in a public bank heightens systemic risk.