Winning Connections? Special Interests and the Sale of Failed Banks

62 Pages Posted: 5 Jun 2017 Last revised: 8 Apr 2022

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)

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: April 1, 2022

Abstract

We study how banks’ special interests affect the resolution of failed banks. Using a sample of FDIC auctions between 2007 and 2016, we find that bidding banks that lobby regulators have a higher probability of winning an auction. However, the FDIC incurs larger costs in such auctions, amounting to 24.8 percent of the total resolution losses. We also show that lobbying winners match less well with acquired banks and display worse post-acquisition performance than their non-lobbying counterparts, suggesting that lobbying interferes with an efficient allocation of failed banks. Our results provide new insights into the bank resolution process and the role of special interests.

Keywords: auction, bank resolution, board connections, failed banks, financial crisis, lobbying, rent seeking, special interests

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 (April 1, 2022). Journal of Banking and Finance, Forthcoming, 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.thomaslambert.org

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Wolf Wagner

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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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