Academic journal article ABA Banking Journal

Should Bridgeport Filing Worry Bankers?

Academic journal article ABA Banking Journal

Should Bridgeport Filing Worry Bankers?

Article excerpt

Should Bridgeport filing worry bankers?

In the wake of Bridgeport, Conn.'s June filing under chapter 9 of the federal bankruptcy code, bankers and other financial market participants were weighing its wider import.

At press time, Bridgeport officials maintained that the city intended to continue making payments to bondholders. They stated that the chief aim in filing is to enable the city to renegotiate onerous municipal labor contracts.

Many states require a municipality to obtain state approval before filing for bankruptcy. Indeed, in mid-July the bankruptcy court was scheduled to hear Connecticut's challenge to Bridgeport's right to file. Multiple views. Banks come at the municipal bond markets from several directions.

In one sense - as investors for their own portfolio - the Bridgeport filing is of somewhat less concern than it once might have been. The Tax Reform Act of 1986 made many public securities less attractive to banking companies, notes Fred W. DeBussey, vice-president and banking analyst at the New York securities rating firm of Fitch Investors Service Inc. He notes, however, that smaller institutions without the benefit of a larger, diversified portfolio may be more exposed.

Smaller banks often buy local government securities as part of their Community Reinvestment Act effort and in general to support local government. However, the Bridgeport filing did not cause alarm at either of two Connecticut depository institutions contacted. Indeed, one, Bridgeport's People's Bank, a large savings institution, holds none of the city's paper and is generally invested in instruments other than munis. The other, a community bank located in another town, holds little municipal paper. Customer angle. Banks also purchase municipal securities for customers. John Ward Logan, executive vice-president, asset/liability management at Nashville, Tenn. …

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