Default Risk And Innovation Of Municipal Bond Insurance

In 2014,《New Budget Law》 had pointed out that local government can float a loan and financing by issuing municipal bond.As a result,municipal bond has become a legal financing channel,and play a role in relieving the pressure of local government in financial revenue and expenditure.Compared to other financing channels,municipal bond is more regulated,more transparent,more convenient and lower costing.Because of these advantages,the issuance of municipal bond has been soaring since 2014.However,there are some problems in the process of issuing bonds,municipal bonds are endorsed by government credit,once default happens,investors will face losses,and the reputation and authority of government can be influenced as well.Hence,precaution of default risk should be given enough concern.Focused on this topic,this paper suggests to learn American's management experience in dealing with municipal bond,taking municipal bond insurance as a tool,achieve default risk management of municipal bond by the participation of insurance companies.This paper includes five chapters: the first chapter introduces background and significant of the whole article.The second chapter make a deep study of municipal bond's present situation in legislation,regulation and running,and point out that internal factors that bring default risk to municipal bond are low level legislation and regulation,less lack of control in issuance number and distortion of credit rating.And macroeconomic fluctuation,macro policy adjustment and public risk are external factors.The third chapter points out the necessities and feasibilities of developing municipal bond insurance by analyzing American experience.The fourth chapter talks about the designing of municipal bond insurance product mainly from setting price and terms.The last chapter gives some advices to develop municipal bond insurance,in terms of pattern selection,municipal bond insurance can be a policy insurance;in terms of risk precaution,government and regulators should built one strict regulatory system,bond insurance companies should make robust business strategy,and credit rating agencies should strengthen industry self-discipline etc.