Southern vs. Non-Southern Underwriting of Municipals

Abstract

Almost every program for southern economic development stresses the importance of readily available investment funds. Beyond recognizing that the resources of southern financial institutions are not adequate to meet the needs of a rapidly expanding economy, however, we know comparatively little about how the financing takes place.l As most students of southern economic problems have discovered, there is a lack of aggregate data that show the sources and uses of funds within the area and the relationships with other parts of the United States. We do not know, except in general terms, where the funds that financed the recent period of economic development came from and to whom they went. How do southern corporations secure equity and debt financing? What do southern investors do with their own funds? What is the proportion of investment needs provided out of southern savings? Our inability to answer these and other important questions makes many of us hope that someday, somehow, an all-embracing study will be made that will give us the answers neatly, in figures that can be added up and balanced. Pending the time when we will have these neat aggregate totals telling us the complete story on the sources and uses of funds within the South, the best we can do is to try to understand a little more about financing southern economic development by studying the way in which certain of the South's financial institutions work. The underwriting of state and local government securities, commonly called municipals, provides such an opportunity. Published data on individual security issues give us information about the underwriting practices of southern investment dealers during a period when the South's financial resources were expanding. Although the published data do not tell us the ultimate source of the funds provided the southern municipal borrowers, the pattern of underwriting that emerges from this study provides the basis for hazarding some generalizations about these sources.