The power of k: politically-targeted activities, connections and the financial system

Deniz Igan and Prachi Mishra ()
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Prachi Mishra: IMF, http://www.imf.org

Journal of Financial Transformation, 2012, vol. 35, 147-158

Abstract: Has the political influence of the financial industry had any bearing on financial regulation and, ultimately, the recent financial crisis? This paper discusses the findings of recent research that uses a detailed database of the lobbying activities, campaign contributions, political connections and mortgage lending activities of the financial industry from 1999 to 2006 in the United States. The evidence suggests that spending on lobbying by the financial industry and network connections between lobbyists and the legislators were positively linked to the probability of a legislator changing positions in favor of deregulation. Also, hiring connected lobbyists who had worked for legislators in the past enhanced the effectiveness of lobbying activities. In addition, lobbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008. Finally, lobbying lenders had a higher bailout probability. These findings suggest that actions of politically influential financial institutions may play a role in shaping financial regulation and in the accumulation of risks in the system.

Keywords: financial system; political influence; financial regulation; financial crisis; lobbying; campaigns; political connections (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1535

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