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Discussion Paper Details

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Title: Political Borders and Bank Lending in Post-Crisis America

Author(s): Matthieu Chavaz and Andrew K Rose

Publication Date: November 2016

Keyword(s): congress, county, data, district, effect, empirical, fixed, mortgage, panel and policy

Programme Area(s): International Macroeconomics and Finance

Abstract: We use spatial discontinuities associated with congressional district borders to identify the effect of political influences on American banks' lending. We show that recipients of the 2008 public capital injection program (TARP) increased mortgage and small business lending by 23% to 60% more in areas located inside their home-representative's district than elsewhere. The impact is stronger if the representative supported the TARP in Congress, was subsequently re-elected, and received more political contributions from the financial industry. Together, these results suggest that political considerations influence credit allocation in a politically mature system like the United States without the formal possibility of political interference in lending decisions, and that this influence is larger if the flows between banks and politicians are reciprocal.

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Bibliographic Reference

Chavaz, M and Rose, A. 2016. 'Political Borders and Bank Lending in Post-Crisis America'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11595