Question 10.11: How has the tax exposure of various U.S. bank security inves...

In recent years, the government has treated interest income and capital gains from most bank investments as ordinary income for tax purposes. In the past, only interest was treated as ordinary income and capital gains were taxed at a lower rate. Tax reform in the United States has also had a major impact on the relative attractiveness of state and local government bonds as bank investments, limiting bankers’ ability to deduct borrowing costs for tax purposes when borrowing money to buy municipal securities.