Large numbers of yield-hungry banks have gorged on municipal bonds, and the industry’s overall holdings of the paper have edged up.
Since 2008, when the Federal Reserve lowered its policy rate to close to zero, munis have grown by a percentage point to make up about 8.4% of total securities owned by banks. While munis are still a small component of aggregate bond portfolios in an industry that has traditionally favored securities with federal backing — particularly mortgage bonds — many banks have piled in. Over the same time, the median ratio of munis to total securities has nearly doubled, to 20.6%. (The graphic below shows industrywide statistics by asset-size category, and securities allocations over time for a group of large muni investors. Interactive controls are described in the captions.)