On Banking Regulation and Lobbying

CERETH Economics Working Paper Series 19/308

39 Pages Posted: 27 Jan 2019

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Stylianos Papageorgiou

ETH Zurich; Centre for Economic Policy Research (CEPR)

Date Written: January 9, 2019

Abstract

We study the political economy of bank capital regulation from a positive and normative perspective. In a general equilibrium setting, capital requirements and lobbying contributions are determined as the outcome of bargaining between banks and politicians. We show that bankers and politicians agree on lobbying contributions and capital regulation that renders banks fragile, reducing efficiency and fairness. Consideration of all general equilibrium effects, or a bail-in provision and high capital regulation standards from international agreements eliminate lobbying incentives, yielding an efficient and fair allocation.

Keywords: banking regulation, lobbying, regulatory capture, capital requirements, bank resolution, risk-taking

JEL Classification: D53, D72, G21, G28

Suggested Citation

Gersbach, Hans and Papageorgiou, Stylianos, On Banking Regulation and Lobbying (January 9, 2019). CERETH Economics Working Paper Series 19/308. Available at SSRN: https://ssrn.com/abstract=3316775

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stylianos Papageorgiou

ETH Zurich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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