Banking in the Shadow of Media Slant

Abstract

We study the effect of a change in media slant on banking decisions made by households. We use the staggered expansion of a conservative local TV news station operator with a well documented bias in broadcasting slant that provides an alarmist view of national events. We find that households shift their deposits from national banks to local banks in areas that are exposed to the news media shock. Households also shift their borrowing activity such that the share of mortgage lending increases at local banks and falls at national banks. These effects are stronger among low-income and male-headed households. We do not find evidence that banks play a role in driving these changes. Banks do not engage in credit rationing - loan approval rates are constant. Banks are not making preferential changes in loan and deposit rates.  In fact, deposit rates fall and mortgage rates rise at local banks. Finally, we do not find evidence that banks change their presence in banking markets either on the intensive or extensive margins. Taken together, our results show that media bias alters household financial decision making. We build a theoretical model that incorporates these changes and highlights the negative welfare consequences of media slant on household financial decisions.

Keywords: Banking, Household Finance, Partisan Media, Bank Deposits and Lending