Banks reduced their quarterly municipal-bond holdings for the first time in nine years, a sign of how much new U.S. tax rules damped demand for debt from state and local governments, the Wall Street Journal reported. Municipal securities held by U.S.-chartered depository institutions fell in the first quarter by nearly $16 billion to $554 billion, according to Federal Reserve data published on Thursday. Banks emerged over the past decade as one of the biggest buyers of tax-exempt municipal debt because the investments were viewed as stable and safe. They currently hold 14 percent of outstanding municipal bonds, according to the Fed data. But new legislation passed late last year by Congress dropped tax rates paid by banks to 21 percent from 35 percent, making tax-exempt bonds less appealing.
