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Politically influenced bank lending

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  • Zhou, Yifan

Abstract

Borrowers from the same state as the chairman of the US Senate Banking Committee (“connected borrowers”) are able to borrow at spreads 19 bps lower than other borrowers. Banks that provide connected loans enjoy regulatory relief in the form of fewer future investigations. Connected borrowers' contributions toward the chairman are influenced by their cost of loans, but the same is not true for nonconnected borrowers. Findings suggest the chairman is incentivized by re-election to help connected borrowers obtain cheaper loans. Results are largely consistent with the existence of an indirect triangular quid pro quo relationship between firms, banks, and politicians.

Suggested Citation

  • Zhou, Yifan, 2023. "Politically influenced bank lending," Journal of Banking & Finance, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:jbfina:v:157:y:2023:i:c:s037842662300211x
    DOI: 10.1016/j.jbankfin.2023.107020
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    More about this item

    Keywords

    Political connection; Campaign contribution; Bank loan; Cost of borrowing;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance

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