City Research Online

Abstract

We examine whether election periods are associated with increased systemic risk. Our analysis includes a global sample of banks from 22 advanced economies from 2000 to 2023, covering a total of 147 national elections. The findings indicate that systemic risk increases during election and post-election periods, while it is lower in the pre-election period in the case of end-of-term elections. More specifically, the year in which elections occur is associated with a 3.74% higher systemic risk compared to the overall average. The results can be attributed to the suppression of negative information and expansionary fiscal policies in the period before elections. Notably, the impact is more pronounced for snap elections and when the incumbent government was not re-elected. In addition, we find that macroprudential policies, strong economic growth and trust in the current government and banks’ financial health can partially mitigate the impact of elections on systemic risk. Finally, to alleviate endogeneity concerns, we employ two instrumental variables, namely, term times and an election uncertainty index based on Google Trends, in a 2SLS model and the results hold and confirm our previous findings, further validating the robustness of our analysis.

Publication Type:	Monograph (Working Paper)
Additional Information:	Copyright the authors, 2024
Publisher Keywords:	Elections ; Systemic risk ; Political uncertainty ; Financial stability
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance H Social Sciences > HJ Public Finance J Political Science
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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