One Big Chart That Explains Why Munis Won't Cause A Crisis

We’ve pointed this out before, that unlike with other credit instruments, munis are unlikely to pose systemic risk (even with a lot of defaults) simply because they’re not typically owned by systemically important institutions.

Most are owned by individuals — people who are small enough to fail.

This chart from Bank of America/Merrill Lynch’s Global Credit Strategy Outlook Conference Call breaks it down.

munis

Photo: Bank of America

Now, what about the impact on property-casualty insurers?

All told, they account for about 25% of holdings.

munis

Photo: Bank of America

By their estimates, an “extreme” level of muni defaults would lead about 5% equity hit for these companies.

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