The Determinants of Banks' Lobbying Activities before and during the 2007-2009 financial crisis

Abstract

In this paper, we examine the relationship between banks' lobbying activities, their size, financial strength, sources of income, and agency problems, before and during the 2007-2009 financial crisis. First, we find that banks are more likely to lobby when they are larger, have more vulnerable balance sheets, are less creditworthy, and have more diversified business profiles. We next find that banks engaged in non-traditional businesses, e.g. securitization and trading, or in highly regulated businesses, e.g. insurance, hire more lobbyists and spend larger amounts on lobbying. We also show that a bank's agency conflicts can explain its more intense lobbying efforts. Finally, we observe that the announcement of the Dodd-Frank bill led to increased lobbying by banks with higher trading revenues.

Keywords: banking, lobbying, networks, political connections, financial crisis, financial regulatory reform, Dodd-Frank bill, Volcker rule

JEL Classification: G01, G21, G28