Winning Connections? Special Interests and the Sale of Failed Banks
49 Pages Posted: 5 Jun 2017 Last revised: 26 Apr 2019
Date Written: April 24, 2019
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: Suggested Citation