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Politics, banks, and sub-sovereign debt: unholy trinity or divine coincidence?

Michael Koetter and Alexander Popov ()

No 2146, Working Paper Series from European Central Bank

Abstract: We exploit election-driven turnover in State and local governments in Germany to study how banks adjust their securities portfolios in response to the loss of political connections. We find that local savings banks, which are owned by their host county and supervised by local politicians, increase significantly their holdings of home-State sovereign bonds when the local government and the State government are dominated by different political parties. Banks’ holdings of other securities, like federal bonds, bonds issued by other States, or stocks, are not affected by election outcomes. We argue that banks use sub-sovereign bond purchases to gain access to politically distant government authorities. JEL Classification: G21, H63, P16

Keywords: government-owned banks; political connections; sub-sovereign debt (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pol
Date: 2018-04
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Working Paper: Politics, banks, and sub-sovereign debt: Unholy trinity or divine coincidence? (2018) Downloads
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