Too many Voters to Fail: Influencing and Political Bargaining for Bailouts

Linda Schilling

No 14243, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The paper provides a novel theory of how banks not only exploit but also cause being perceived as 'too big to fail'. Bank creditors are also voters. Economic voting prompts politicians to grant bailouts given a bank failure. The bank's capital structure acts as a tool to impact the electoral vote and thus the bail-out by changing the relative group size of voters who favor as opposed to voters who object the bailout. The creditors' anticipation of high bailouts, in return, allows the bank to reduce funding costs today, by this maximizing revenues.

Keywords: Corporate finance; Bail-outs; Political economy; Economic voting; Capital structure; Influencing (search for similar items in EconPapers)
JEL-codes: D72 G3 P16 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cdm and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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