Bank Influence at a Discount

CERETH Economics Working Paper Series 19/308

55 Pages Posted: 27 Jan 2019 Last revised: 18 Oct 2021

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Research; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Stylianos Papageorgiou

University of Cyprus

Date Written: November 24, 2020

Abstract

In a general equilibrium framework, we study the cost incurred by banks to ``buy'' influence on capital regulation via campaign contributions. Our central result is that banks buy influence at a discount: They incur a cost that does not fully reflect the effect of lowering capital requirements. This allows banks to achieve abnormal returns. The larger the discount, the higher the abnormal returns, and the stronger the Tullock paradox (1972)---i.e., low contributions for high influence---appears in the context of banking. We proceed to identify how political and banking-specific factors affect the prominence of the paradox.

Keywords: campaign contributions, abnormal returns, capital requirements, general equilibrium

JEL Classification: D53, D72, G21, G28

Suggested Citation

Gersbach, Hans and Papageorgiou, Stylianos, Bank Influence at a Discount (November 24, 2020). CERETH Economics Working Paper Series 19/308, Available at SSRN: https://ssrn.com/abstract=3316775 or http://dx.doi.org/10.2139/ssrn.3316775

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Research ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stylianos Papageorgiou (Contact Author)

University of Cyprus ( email )

Cyprus

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
122
Abstract Views
885
Rank
414,744
PlumX Metrics