Political Cycles in Bank Lending to the Government

Michael Koetter and Alexander Popov

The Review of Financial Studies, 2021, vol. 34, issue 6, 3138-3180

Abstract: We study how political party turnover after German state elections affects banks’ lending to the regional government. We find that between 1992 and 2018, party turnover at the state level leads to a sharp and substantial increase in lending by local savings banks to their home-state government. This effect is accompanied by an equivalent reduction in private lending. A statistical association between political party turnover and government lending is absent for comparable cooperative banks that exhibit a similar regional organization and business model. Our results suggest that political frictions may interfere with government-owned banks’ local development objectives.

JEL-codes: D72 G21 P16 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)

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