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Political influence and banks: Evidence from mortgage lending

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  • Chu, Yongqiang
  • Zhang, Tim

Abstract

We show that banks expand mortgage lending in the home states of Senate Banking Committee chairs, and the effect is more pronounced in counties where the incumbent senator faces a competitive re-election race. Banks strategically target politically active borrowers. Consequently, banks’ profitability increases after favoring the incumbent politicians’ constituents, but they suffer a deterioration in mortgage asset quality in the long run. Our findings imply that political power could distort private capital allocation beyond conventional political contribution channels.

Suggested Citation

  • Chu, Yongqiang & Zhang, Tim, 2022. "Political influence and banks: Evidence from mortgage lending," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:jfinin:v:52:y:2022:i:c:s1042957322000353
    DOI: 10.1016/j.jfi.2022.100982
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    Cited by:

    1. Max Berre & Benjamin Le Pendeven, 2022. "Business-cycles and Cash-on-Market: Pre-money Startup Valuation in the Macroeconomic Environment," Papers 2211.16151, arXiv.org.
    2. Gong, Di & Huizinga, Harry & Li, Tianshi & Zhu, Jigao, 2023. "Goodhart’s law in China: Bank branching regulation and window dressing," Journal of Empirical Finance, Elsevier, vol. 74(C).
    3. Berger, Allen N. & Karakaplan, Mustafa U. & Roman, Raluca A., 2023. "Whose bailout is it anyway? The roles of politics in PPP bailouts of small businesses vs. banks," Journal of Financial Intermediation, Elsevier, vol. 56(C).
    4. Xudong An & Sadok El Ghoul & Omrane Guedhami & Ross Levine & Raluca Roman, 2023. "Social Capital and Mortgages," Working Papers 23-23, Federal Reserve Bank of Philadelphia.
    5. Pauline Avril & Gregory Levieuge & Camelia Turcu, 2023. "Do bankers want their umbrellas back when it rains? Evidence from typhoons in China," Working Papers 2023.08, International Network for Economic Research - INFER.
    6. Max Berre & Benjamin Le Pendeven, 2022. "Business-cycles and Cash-on-Market: Pre-money Startup Valuation in the Macroeconomic Environment," Post-Print hal-03872889, HAL.

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    More about this item

    Keywords

    Political influence; Mortgage lending; Senate banking committee; HMDA;
    All these keywords.

    JEL classification:

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

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