Too Many Voters to Fail: Influencing and Political Bargaining for Bailouts

28 Pages Posted: 14 Jan 2020

See all articles by Linda Schilling

Linda Schilling

Washington University in Saint Louis, John M. Olin Business School

Date Written: December 2019

Abstract

The paper provides a novel theory of how banks not only exploit but also cause being perceived as 'too big to fail'.

Bank creditors are also voters. Economic voting prompts politicians to grant bailouts given a bank failure.

The bank's capital structure acts as a tool to impact the electoral vote and thus the bail-out by changing the relative group size of voters who favor as opposed to voters who object the bailout. The creditors' anticipation of high bailouts, in return, allows the bank to reduce funding costs today, by this maximizing revenues.

Keywords: bail-outs, Capital Structure, Corporate Finance, Economic voting, influencing, political economy

JEL Classification: D72, G3, P16

Suggested Citation

Schilling, Linda, Too Many Voters to Fail: Influencing and Political Bargaining for Bailouts (December 2019). Available at SSRN: https://ssrn.com/abstract=3518581

Linda Schilling (Contact Author)

Washington University in Saint Louis, John M. Olin Business School ( email )

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