Political influence and banks: Evidence from mortgage lending |
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| Institution: | 1. Fordham University, Bank of Finland and University of Sydney, 45 Columbus Avenue, New York, N.Y. 10023 USA;1. School of Finance, Renmin University of China, Mingde Main Building, Beijing 100872, China;2. School of Economics and Management, Tsinghua University, Weilun Building, Beijing 100084, China;1. Department of Economics University of Birmingham, United Kingdom;2. Department of Economics Carleton University, United Kingdom;1. Research Centre, Deutsche Bundesbank, Germany;2. University of Vienna and Vienna Graduate School of Finance (VGSF), Austria |
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| 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. |
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| Keywords: | Political influence Mortgage lending Senate banking committee HMDA |
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