Electoral Cycles in Savings Bank Lending



Englmaier F & Stowasser T (2017) Electoral Cycles in Savings Bank Lending. Journal of the European Economic Association, 15 (2), pp. 296-354.

We provide evidence that German savings banks, which are controlled by county-level politicians, systematically adjust lending policies in response to local electoral cycles. The different timings of county elections across states and the existence of a comparable group of cooperative banks-that are very similar to savings banks but lack their political connectedness-allow for identification of the effects of county elections on savings bank lending. These effects are economically meaningful and very robust to various specifications. We find that election-induced lending negatively impacts savings bank profitability and is associated with an increase in credit defaults roughly three years after an election. Examining the political-economy aspects of our findings, we provide evidence that savings bank excess lending and public spending at the county level are substitute levers for county politicians. Finally, we find indications that subpar pre-election economic county performance hurts re-election prospects and increases the intensity of lending cycles

Journal of the European Economic Association: Volume 15, Issue 2

Publication date30/04/2017
Publication date online08/04/2017
Date accepted by journal08/04/2017
ISSN 1542-4766

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Dr Till Stowasser

Dr Till Stowasser

Senior Lecturer, Economics