Winning Connections? Special Interests and the Sale of Failed Banks

49 Pages Posted: 5 Jun 2017 Last revised: 21 Oct 2018

See all articles by Deniz Igan

Deniz Igan

International Monetary Fund (IMF) - Financial Studies Division

Thomas Lambert

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

Wolf Wagner

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Centre for Economic Policy Research (CEPR)

Eden Quxian Zhang

Monash University; Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Multiple version iconThere are 3 versions of this paper

Date Written: October 18, 2018

Abstract

We study how lobbying affects the resolution of failed banks using a sample of FDIC auctions between 2007 and 2016. We show that bidding banks that lobby regulators have a higher probability of winning an auction. In addition, the FDIC incurs higher costs in such auctions, amounting to 18.4 percent of the total resolution losses. We also find that lobbying winners have worse operating and stock market performance than their non-lobbying counterparts, suggesting that lobbying results in a less efficient allocation of failed banks. Our results provide new insights into the bank resolution process and the role of special interests.

Keywords: bank resolution, failed banks, financial crisis, lobbying, rent seeking

JEL Classification: D72, E65, G18, G21

Suggested Citation

Igan, Deniz and Lambert, Thomas and Wagner, Wolf and Zhang, Eden Quxian, Winning Connections? Special Interests and the Sale of Failed Banks (October 18, 2018). Available at SSRN: https://ssrn.com/abstract=2980742 or http://dx.doi.org/10.2139/ssrn.2980742

Deniz Igan

International Monetary Fund (IMF) - Financial Studies Division ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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

Wolf Wagner

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Eden Quxian Zhang

Monash University ( email )

900 Dandenong Rd
Caulfield East, Victoria 3145
Australia

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Rotterdam
Netherlands

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