Winning Connections? Special Interests and the Sale of Failed Banks
48 Pages Posted: 5 Jun 2017 Last revised: 3 Nov 2020
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 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 18.4 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, failed banks, financial crisis, lobbying, rent seeking
JEL Classification: D72, E65, G18, G21
Suggested Citation: Suggested Citation