Municipal bond rating analysis

Municipal Bond Ratings and Citizens' Rights

“…The alleged discriminator is then given the chance to show that the business practices in question are based on legitimate business factors, usually called "business necessity." 30 Suppose, for example, that a regulator's analysis of revenue bonds ratings came to the same conclusion as the study of GO bonds by Moon and Stotsky (1993). This finding would establish a prima facie case that these revenue bond ratings involve behavior analogous to redlining against cities with relatively high non-white populations.…”

“…More specifically, this paper addresses the question: How could a regulator determine whether municipal bond ratings meet standards of fairness that are widely applied to other activities in our society? This question has not been addressed in the recent hearings on bond rating agencies; instead, it grows out of the finding of several studies (Moon andStotsky, 1993, Loviscek andCrowley, 1990) that the racial or ethnic composition of a jurisdiction is a significant predictor of that jurisdiction's credit rating, controlling for other things. The Moon and Strotsky study found, for example, that in 1981 American cities with a higher proportion of non-whites in their population received lower GO bond ratings than other cities, controlling for a wide range of city characteristics.…”

“…See Greene (2003). Existing applications of this approach to municipal bond ratings include Moon and Stotsky (1993) and Ederington (1985). 20 As explained by Ross and Yinger (2002), however, this approach has three flaws.…”

“…Second, a regulator can collect data on B, G, and M and use an approach like the one in Moon and Stotsky (1993) to estimate equation (16). As explained earlier, however, this approach cannot uncover behavior analogous to disparate-impact discrimination and provides an accurate estimate of the analog to disparate-treatment discrimination only if the exact variables used by the bond rating agency are known.…”

“…3 A large literature uses statistical procedures to predict municipal bond ratings. See, for example, Ammar, et al (2001), Moon and Stotsky (1993), Loviscek and Crowley (1990 Nazareth (2005). The former specializes in insurance company bonds and the latter is a general-purpose rating company that has rates some municipal bonds in Canada.…”