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SUMMARY:The Political Economy of Bank Bailouts
DTSTART:20160520T131500
DTEND:20160520T144500
DTSTAMP:20260921T140801Z
UID:62f12df9f43f75a1c17347c31ef7b074677afb5886e939836714fd90
CATEGORIES:Conferences - Seminars
DESCRIPTION:Vikrant VIG (London Business School)\nIn this paper\, we exami
 ne how the institutional design affects the outcome of bank bailout decisi
 ons. In the German savings bank sector\, distress events can be resolved b
 y local politicians or a state-level association. We show that decisions b
 y local politicians with close links to the bank are distorted by personal
  considerations: While distress events per se are not related to the elect
 oral cycle\, the probability of local politicians injecting taxpayers’ m
 oney into a bank in distress is 30 percent lower in the year directly prec
 eding an election. Using the electoral cycle as an instrument\, we show th
 at banks that are bailed out by local politicians experience less restruct
 uring and perform considerably worse than banks that are supported by the 
 savings bank association. Our findings illustrate that larger distance bet
 ween banks and decision makers reduces distortions in the decision making 
 process\, which has implications for the design of bank regulation and sup
 ervision.
LOCATION:Unil\, Internef building\, room 233
STATUS:CONFIRMED
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