U.S. State Politics and Bank Performance

Abstract

The goal of this research is to examine the impact of politics in all 50 U.S. states on bank performance over the period of 1999-2021. Prior to this study, the impact of politics on bank performance was examined by one paper on the Federal level as it pertained to political affiliation of the U.S. president and the party in control of the Congress and by another paper that looked at politics on the state level but the time span for was limited to one year that marked the onset of the Covid pandemic. The findings of this research show that which of the two political parties controls the governorship and whether a single political party controls both the governorship and the house legislature impacts bank performance within states. Research shows that republican control of the governorship is associated with higher bank profitability, liquidity and capital adequacy but lower asset quality. Additionally, when a single party controls both the governor’s mansion and the legislative majority, banks produce lower profits, and similarly to the results for the republican governors, higher levels of liquidity and capital, but lower levels of asset quality.