National politics and bank default risk in the eurozone |
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| Affiliation: | 1. Leibniz University Hannover, Institute of Money and International Finance;2. Halle Institute for Economic Research, Department of Financial Markets;3. Technische Universitaet Dresden, Faculty of Business and Economics, Dresden D-01062, Germany;1. Research Department, Central Bank of Brazil, Brasília, Brazil;2. Department of Computing and Mathematics, Faculty of Philosophy, Sciences, and Literatures in Ribeirão Preto, University of São Paulo, Ribeirão Preto, Brazil;3. Universidade Católica de Brasília, Brasília, Brazil;1. Bank of Finland, Finland;2. Fordham University, USA;3. University of Turku, Finland;1. Federal Deposit Insurance Corporation, United States;2. University of Maryland, R.H. Smith School of Business, United States;1. Cardiff Business School, Cardiff University, Cardiff CF10 3EU, United Kingdom;2. School of Economics, Finance and Management, Bristol University, Bristol BS8 1TN, United Kingdom |
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| Abstract: | We study the impact of national politics on default risk of eurozone banks as measured by the stock market-based Distance to Default. We find that national electoral cycles, the power of the government as well as the government’s party ideological alignment significantly affect the stability of banks in the eurozone member countries. Moreover, we show that the impact of national politics on bank default risk is more pronounced for large as well as weakly capitalized banks. |
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| Keywords: | Bank default risk Political factors Eurozone Stock market Distance to default |
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