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Winning Connections? Special Interests and the Sale of Failed Banks

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  • Wagner, Wolf
  • Lambert, Thomas
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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.

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  • Wagner, Wolf & Lambert, Thomas & ,, 2017. "Winning Connections? Special Interests and the Sale of Failed Banks," CEPR Discussion Papers 12440, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12440
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    Cited by:

    1. Kang, Shulong & Dong, Jianfeng & Yu, Haiyue & Cao, Jin & Dinger, Valeriya, 2021. "City commercial banks and credit allocation : Firm-level evidence," BOFIT Discussion Papers 4/2021, Bank of Finland, Institute for Economies in Transition.
    2. Müller, Karsten, 2019. "Electoral cycles in macroprudential regulation," ESRB Working Paper Series 106, European Systemic Risk Board.
    3. Ms. Deniz O Igan & Thomas Lambert, 2019. "Bank Lobbying: Regulatory Capture and Beyond," IMF Working Papers 2019/171, International Monetary Fund.
    4. Jason Allen & Robert Clark & Brent Hickman & Eric Richert, 2019. "Resolving Failed Banks: Uncertainty, Multiple Bidding & Auction Design," Staff Working Papers 19-30, Bank of Canada.
    5. Serkan Karadas & Nilufer Ozdemir, 2023. "Does Public Corruption Affect Bank Failures? Evidence from the United States," JRFM, MDPI, vol. 16(10), pages 1-20, October.
    6. Kang, Shulong & Dong, Jianfeng & Yu, Haiyue & Cao, Jin & Dinger, Valeriya, 2021. "City commercial banks and credit allocation: Firm-level evidence," BOFIT Discussion Papers 4/2021, Bank of Finland Institute for Emerging Economies (BOFIT).
    7. Girard, Alexandre & Gnabo, Jean-Yves & Londoño van Rutten, Rodrigo, 2023. "Firm performance and the crowd effect in lobbying competition," Finance Research Letters, Elsevier, vol. 53(C).
    8. Angelos Angelopoulos & Konstantinos Angelopoulos & Spyridon Lazarakis & Apostolis Philippopoulos, 2021. "The distributional consequences of rent‐seeking," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1616-1640, October.
    9. repec:zbw:bofitp:2021_004 is not listed on IDEAS

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    More about this item

    Keywords

    Bank resolution; Failed banks; Financial crisis; Lobbying; Rent seeking;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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