Politics and banking: A survey of the recent literature

Abstract

Abstract This survey aims at briefly summarising key findings of the recent literature dealing with politics and banking. The interplay between banks and politics has received increasing interest in recent years following Dinc (2005) on the influence of elections on bank lending. It focusses on two questions: the influence of elections on bank behaviour, and the interconnections between democracy and banking. Two key findings emerge from the literature. First, elections exert an influence on the banking industry. They affect bank lending and bank failures, with electoral cycles leading to economic costs. Second, democracy has a beneficial impact on the credit conditions of firms. This work provides a roadmap for future research to investigate the political interference in private banks’ behaviour and in developed countries.