While many banks get involved in tax-exempt loans or bond purchases, many overlook the much smaller but vitally important taxable market. While larger spreads can be achieved in the tax-exempt market, that market comes with the risk that the bank’s tax position could change. This could happen because of either a tax law (i.e., like just happened with tax reform) change or because the bank records a loss for a year, and it cannot take immediate advantage of the tax-exempt income.
Tag: Municipal Lending
For certain debt financing, banks are able to earn interest without paying federal, state and/or local taxes. These tax-exempt lending opportunities allow banks to offer much lower interest rates to qualified borrowers and create opportunities for community banks to structure very competitively priced loans to local tax-exempt entities.