Abstract
This paper studies a specialized institution in Swedish municipal credit markets, a so-called municipal credit agency. This institution is fully owned by municipalities and gives them access to long-term credit by raising funds in international capital markets. We estimate in a portfolio of bank loans that the credit spreads of commercial banks are in comparison 15bp higher. Exploiting time-series variation of when municipalities begin to participate in the municipal credit agency, an alternative panel model suggests that the membership decreases a municipality's credit spread by 13bp. Estimating the same model with annual accounting measures, we cannot detect significant evidence that a membership affects the fiscal discipline of municipalities. During a financial crisis, such an institution may mitigate spillover effects on municipal credit markets as its asset and funding base is less affected.