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The Revolving Door and Worker Flows in Banking Regulation

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  • David Lucca
  • Amit Seru
  • Francesco Trebbi

Abstract

This paper traces career transitions of federal and state U.S. banking regulators from a large sample of publicly available curricula vitae, and provides basic facts on worker flows between the regulatory and private sector resulting from the revolving door. We find strong countercyclical net worker flows into regulatory jobs, driven largely by higher gross outflows into the private sector during booms. These worker flows are also driven by state-specific banking conditions as measured by local banks’ profitability, asset quality and failure rates. The regulatory sector seems to experience a retention challenge over time, with shorter regulatory spells for workers, and especially those with higher education. Evidence from cross-state enforcement actions of regulators shows gross inflows into regulation and gross outflows from regulation are both higher during periods of intense enforcement, though gross outflows are significantly smaller in magnitude. These results appear inconsistent with a "quid-pro-quo" explanation of the revolving door, but consistent with a "regulatory schooling" hypothesis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20241.

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Date of creation: Jun 2014
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Handle: RePEc:nbr:nberwo:20241

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  1. Loungani, Prakash & Rogerson, Richard, 1989. "Cyclical fluctuations and sectoral reallocation : Evidence from the PSID," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(2), pages 259-273, March.
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  9. Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics And Politics Of The Relaxation Of Bank Branching Restrictions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(4), pages 1437-1467, November.
  10. Allen N. Berger & Timothy H. Hannan, 1994. "The efficiency cost of market power in the banking industry: a test of the "quiet life" and related hypotheses," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 94-36, Board of Governors of the Federal Reserve System (U.S.).
  11. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
  12. David J. Salant, 1995. "Behind the Revolving Door: A New View of Public Utility Regulation," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 362-377, Autumn.
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