Electoral Cycles in Bank Lending Explained: The Role of Political Representation in Governing Bodies
- Do politicians direct bank credit for their political benefit? We know that public-sector banks often increase lending in election years and that politicians benefit electorally from bank connections. The mechanisms and the conditions that facilitate politically motivated bank lending are however not yet explored. We study the case of German savings banks and use original bank-level data, including information on bank loans and politicians’ “de facto” representation in banks’ governing bodies for 294 savings banks in eight German states between 2006–2016 to estimate a difference-in-difference model. We find that savings banks with political chairmen, with a high share of political board members, and with a high partisan concentration in the supervisory board are particularly likely to systematically adjust lending before county elections. This effect is driven by savings banks with county-level chairpersons from the conservative party and robust to various specifications.