Elections, Political Competition and Bank Failure
49 Pages Posted: 14 Dec 2012 Last revised: 28 Aug 2014
Date Written: December 13, 2012
We exploit exogenous variation in the timing of gubernatorial elections to study the timing of bank failure in the US. Using hazard analysis, we show that bank failure is about 45% less likely in the year leading up to an election. Political control (i.e. lack of competition) can explain all of this average election year fall in the hazard rate. In particular, we show that the reduction in hazard rate doubles in magnitude for banks operating in states where the governor has simultaneous control of the upper- and lower-house of the state legislature (i.e. complete control) heading into an election.
Keywords: bank failure, elections, political competition/control
JEL Classification: G21, G28, D72, D73
Suggested Citation: Suggested Citation