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The political economy of finance and regulatory capture: Evidence from the US Congress

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  • Silano, Filippo

Abstract

The 2007-08 Global Financial Crisis is a watershed phenomenon that reshaped global capitalism. Stemming from the argument that the Crisis was caused by deregulation, this article assesses to what extent the financial industry influenced the legislative process underlying these reforms. The hypothesis is that, during the deregulation process, the financial industry captured lawmakers' voting behaviour. Drawing on a logistic regression model, this study estimates to what extent 106th -109th Congress roll call votes on financial liberalisation were biased by industry-led campaign contributions and lobbying activities. The main finding shows that members of the US Congress recipient of funding from the financial sector were more prone to support deregulation. Providing systematic empirical evidence of capture, the results support the literature labelling the Crisis as the result of industry-induced deregulation.

Suggested Citation

  • Silano, Filippo, 2023. "The political economy of finance and regulatory capture: Evidence from the US Congress," ILE Working Paper Series 72, University of Hamburg, Institute of Law and Economics.
    • Handle: RePEc:zbw:ilewps:72
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    References listed on IDEAS

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    More about this item

    Keywords

    political economy; financial crisis; deregulation; capture; campaign finance; lobbying; US Congress; voting behaviour; logistic regression;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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