Political Influence and Banks: Evidence from Mortgage Lending

54 Pages Posted: 28 Nov 2018 Last revised: 10 Jul 2022

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Tim Zhang

University of Wyoming, College of Business

Date Written: June 20, 2022

Abstract

We show that banks expand mortgage lending in the home states of Senate Banking Committee chairs, and the effect is more pronounced in counties where the incumbent senator faces a competitive re-election race. Banks strategically target politically active borrowers. Consequently, banks' profitability increases after favoring the incumbent politicians' constituents, but they suffer a deterioration in mortgage asset quality in the long run. Our findings imply that political power could distort private capital allocation beyond conventional political contribution channels.

Keywords: Political Influence, Mortgage Lending, Senate Banking Committee, HMDA

JEL Classification: D72, G21, G28

Suggested Citation

Chu, Yongqiang and Zhang, Tim, Political Influence and Banks: Evidence from Mortgage Lending (June 20, 2022). Available at SSRN: https://ssrn.com/abstract=3286398 or http://dx.doi.org/10.2139/ssrn.3286398

Yongqiang Chu (Contact Author)

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

Tim Zhang

University of Wyoming, College of Business

1000 E. University Avenue
Department 3275
Laramie, WY 82071
United States

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