Politically Polarized Depositors

Abstract Exploiting an exogenous increase in public awareness of banks’ lending to the gun industry, this article documents significant deposit outflows from gun lenders. These outflows are stronger in Democratic-leaning markets and for Republican-leaning lenders. In contrast, anti-gun lenders experience limited and insignificant outflows, consistent with policy alignment with depositor values. Outflows tighten funding constraints, prompting gun lenders to reduce deposit spreads and branches in Democratic-leaning markets. While large gun lenders remain resilient, small gun lenders significantly reduce their CRA loan volumes. The findings highlight political value misalignment as a driver of depositor behavior and its real effects on bank operations.