On Banking Regulation and Lobbying
CERETH Economics Working Paper Series 19/308
39 Pages Posted: 27 Jan 2019
Date Written: January 9, 2019
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: Suggested Citation