Bank Lobbying as a Financial Safety Net: Evidence from the Postcrisis U.S. Banking Sector

Abstract

I argue creditors reflect the financial-safety-net aspect of bank lobbying, plausibly considering
the link between bank lobbying and government bailouts. My structural estimation based on U.S.
data suggests bank lobbying is negatively associated with the occurrence of a run-like equilibrium
when a bank is subject to multiple equilibria. The estimated effect on bank risk and value is
economically significant in the post-crisis U.S. banking sector. This result is consistent with the
reduced-form evidence and has passed multiple robustness checks. Counterfactual simulations
suggest the lobbying effect as a financial safety net would vary depending on policy responses to
the financial crisis.

Keywords: Bank Lobbying, Financial Crisis, Multiple Equilibria

JEL Classification: E44, G01, G21, G28, G32, D72