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Does government stability affect the banking system’s stability?

Author

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  • Nicolae Stef
  • Sophia Dimelis

Abstract

More stable governments should improve banking systems? financial stability by increasing the predictability of future public decisions. Our study explores the relationship between political stability, as captured by the voting share of governing parties, and banking system stability. Using a sample of 84 countries over the 2004?2017 period, our dynamic panel approach shows that voting power is significantly related to banking default risk only in presidential systems. An increase in the voting share of governing parties probably favors the enforcement of the president?s political agenda, thereby reducing the degree of political uncertainty. This seems to strengthen banking stability. JEL Classification G21, D72, G28

Suggested Citation

  • Nicolae Stef & Sophia Dimelis, 2023. "Does government stability affect the banking system’s stability?," Finance, Presses universitaires de Grenoble, vol. 44(3), pages 5-46.
    • Handle: RePEc:cai:finpug:fina_pr_015
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    More about this item

    Keywords

    Z-Score; Government; Banks; Democracy; Presidential system; Vote;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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