Political influence and banks: Evidence from mortgage lending

Yongqiang Chu and Tim Zhang

Journal of Financial Intermediation, 2022, vol. 52, issue C

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.

Keywords: Political influence; Mortgage lending; Senate banking committee; HMDA (search for similar items in EconPapers)
JEL-codes: D72 G21 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:52:y:2022:i:c:s1042957322000353

DOI: 10.1016/j.jfi.2022.100982

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