Policy Uncertainty and Bank Mortgage Credit

We document that banks reduce the supply of mortgage loans when policy uncertainty increases in their headquarter states as measured by the timing of U.S. gubernatorial elections. The reduction is larger for term‐limited elections and close elections. We utilize high‐frequency, geographically granular loan‐level data to address an identification problem arising from changing local loan demand: (i) we estimate a difference‐in‐difference specification with state/time or county/time fixed effects; (ii) banks reduce lending outside their home states as well when their home states hold elections; and (iii) we observe important cross‐sectional differences in the way banks with different characteristics respond to policy uncertainty.