Banks that implemented antigun or progun policies experienced substantial reductions in deposit growth due to politically polarized depositors

Jeung, Jinoug, Politically Polarized Depositors (July 30, 2021). SSRN: http://dx.doi.org/10.2139/ssrn.3896745

Abstract: Exploiting a shock drawing public attention to banks’ financial relationships with the firearms industry – Antigun activism following the 2018 Parkland shooting – this paper demonstrates that political values shape depositor behavior. I find that, following the 2018 Parkland shooting, banks that financed firearms manufacturers experienced significant decreases in deposit growth. These antigun depositor movements were stronger in counties with higher Democrat shares and for more Republican-leaning banks. Banks that implemented antigun policies also experienced substantial reductions in deposit growth, but these pro-gun depositor movements were stronger in counties with higher Republican shares. These divergent depositor movements suggest that conflicting political values between banks and depositors lead to depositor movements. Furthermore, this paper presents the implications of antigun depositor movements for the deposit market and the firearms industry. I find that antigun depositor movements deteriorated the market competitiveness of targeted banks, thus leading them to decrease deposit spreads in favor of depositors. The targeted banks’ increased costs of funding by the sluggish deposit growth and the decreased deposit spreads imposed higher financial constraints on the firearms industry, thus contracting their business.

Keywords: Depositor behavior, Political values, Social activism, CSR

JEL Classification: G21, G41, M14