Bank-Level Political Risk and the CD Rates Required by Money Market Funds

We use the bank-level measure of political risk from Hassan et al. (2019), which is based on textual analysis of conference calls, to investigate whether banks’ exposure to political risk is associated with an increase in their rates for certificates of deposit (CDs) when borrowing from money market funds (MMFs). Our findings show that this risk exposure is associated with an increase in the short-term borrowing costs for banks. These results are robust to a range of univariate and multivariate regression specifications, fixed effects, and propensity score matching.