Lobbying on Regulatory Enforcement Actions: Evidence from U.S. Commercial and Savings Banks

Management Science, 2019, 65(6), 2545-2572.

57 Pages Posted: 9 Nov 2014 Last revised: 6 Jul 2019

See all articles by Thomas Lambert

Thomas Lambert

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Date Written: June 1, 2019

Abstract

This paper analyzes the relationship between bank lobbying and supervisory decisions of regulators, and documents its moral hazard implications. Exploiting bank-level information on the universe of commercial and savings banks in the United States, I find that regulators are 44.7 percent less likely to initiate enforcement actions against lobbying banks. This result is robust across measures of lobbying, and accounts for endogeneity concerns by employing instrumental variables strategies. In addition, I show that lobbying banks are riskier and reliably underperform their non-lobbying peers. Overall, these results appear rather inconsistent with an information-based explanation of bank lobbying, but consistent with the theory of regulatory capture.

Keywords: banking supervision, enforcement actions, lobbying, regulatory capture, risk taking

JEL Classification: D72, G21, G28

Suggested Citation

Lambert, Thomas, Lobbying on Regulatory Enforcement Actions: Evidence from U.S. Commercial and Savings Banks (June 1, 2019). Management Science, 2019, 65(6), 2545-2572.. Available at SSRN: https://ssrn.com/abstract=2517235 or http://dx.doi.org/10.2139/ssrn.2517235

Thomas Lambert (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.sites.google.com/site/lambertthom

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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