Winning Connections? Special Interests and the Sale of Failed Banks

48 Pages Posted: 18 Jan 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: November 2017

Abstract

We study how lobbying affects the resolution of failed banks, using a sample of FDIC auctions between 2007 and 2014. 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 16.4 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: Western Hemisphere, United States, Bank resolution, Financial crisis, Rent seeking, Failed banks, Lobbying, Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior, Studies of Particular Policy Episodes, Government Policy and Regulation

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 (November 2017). IMF Working Paper No. 17/262. Available at SSRN: https://ssrn.com/abstract=3104512

Deniz Igan (Contact Author)

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

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

Thomas Lambert

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

Register to save articles to
your library

Register

Paper statistics

Downloads
39
Abstract Views
206
PlumX Metrics