Bank ownership of municipal debt grew 7.2% last year on a cost basis, to $154.5 billion, and 1.7% on a fair-value basis, to $147.4 billion, according to Highline Data LLC of Cambridge, Mass.

Last year was the 13th straight year banks increased their municipal portfolios. In 2007 they grew 5.3% on a cost basis nd 4.4% on a fair-value basis.

Matt Fabian, a senior municipal analyst at Municipal Market Advisors, said last year's increase was tied to banks' decrease in equity asset allocation as Wall Street was jolted by severe turmoil. "Because of their tax treatment, municipals help banks pay a larger fee to their depositors, and with banks struggling to compete with each other, that [strategy] was valuable," he said.

Significant growth in municipal assets by three of the country's largest institutions — Citigroup Inc., Bank of America Corp., and Wachovia Corp. — helped boost the industry's totals. Those three firms had the largest increases in municipal debt last year.

Calls to the companies seeking comment were not returned by press time.

Citi, which also had the largest municipal portfolio among the nation's 500 banking companies, increased its tax-exempt holdings by 36.4%, to $15.87 billion, its highest level in the past four years. B of A boosted its portfolio by 51.1%, to $10.51 billion.

Though Wachovia had the fifth-largest municipal portfolio, it had the third-highest increase in municipal holdings — 44.3% — and added $1.55 billion to its portfolio, ending 2008 with $5.04 billion. The increase followed minimal growth in the previous two years: 5% in 2007 and 2% in 2006.

One factor contributing to growth in bankers' tax-exempt holdings was the availability of solid bank-qualified municipal bond issues last year at a time of unprecedented muni-to-Treasury spreads that exceeded 150%, making municipals a lucrative opportunity for institutions, like banks, according to Howard Mackey, the president of the broker-dealer unit at Rice Financial Products Co. in New York.

U.S. Bancorp had the third-largest portfolio of municipal debt, even though its holdings declined by 0.9% last year, to $7.12 billion.

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