The municipal bond market is reinventing itself. First, the auction rate securities market failed. Then the banks that backed variable-rate debt obligations with letters of credit guarantees were downgraded or removed from the market. Now, in many cases, the municipal bond agencies are selling securities directly to banks, despite thin spreads. The administrative cost savings on direct purchases can be significant, according to Ballard Spahr Public Finance Partner William C. Rhodes.

"You wouldn't have to pay underwriting fees because there's no underwriting," Mr. Rhodes said. "You wouldn't have to pay legal expenses and printing costs for disclosure documents because banks are doing their own due diligence without a disclosure document."