Political Quid Pro Quo In Financial Markets

42 Pages Posted: 5 Aug 2019 Last revised: 7 Jul 2022

See all articles by Anne Laure Delatte

Anne Laure Delatte

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Adrien Matray

Princeton University

Noémie Pinardon-Touati

HEC Paris

Multiple version iconThere are 2 versions of this paper

Date Written: July 31, 2019

Abstract

Formally independent private banks engage in an exchange of favor with local politicians to gain access to politically-controlled rents. Using French credit registry for 2007-2017, we find that banks grant favors to local politicians by increasing credit granted to the private sector by 9%-14% the year a powerful incumbent faces a contested election. As politicians return the favor, banks that grant more credit to private firms in election years gain market share in the profitable market for loans to local public entities after the election, when the incumbent is reelected. Thus, when politicians control the allocation of rents, formal independence does not ensure the private sector's effective independence from politically motivated distortions.

Keywords: Politics and Banking, Moral Suasion, Local Government Financing

JEL Classification: G21, G30, H74, H81

Suggested Citation

Delatte, Anne Laure and Matray, Adrien and Pinardon-Touati, Noémie, Political Quid Pro Quo In Financial Markets (July 31, 2019). Available at SSRN: https://ssrn.com/abstract=3429836 or http://dx.doi.org/10.2139/ssrn.3429836

Anne Laure Delatte

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

Adrien Matray (Contact Author)

Princeton University ( email )

Bendheim Center for Finance
26 Prospect Avenue
Princeton, NJ 08540
United States

Noémie Pinardon-Touati

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

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