Winning Connections? Special Interests and the Sale of Failed Banks

Deniz Igan, Thomas Lambert, Wolf Wagner and Quxian Zhang

No 2017/262, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; failed bank; lobbying regulator; capital ratio; abnormal returns; dummy variable; Bank resolution; Failed banks; Financial crisis; Lobbying; Rent seeking; banking regulator; bidding bank; FDIC-run auction; state headquarters; bank holding company; camels rating; lobbying bank; Loans; Capital adequacy requirements; Distressed institutions; Liquidity management (search for similar items in EconPapers)
Pages: 47
Date: 2017-11-22
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Citations: View citations in EconPapers (8)

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Journal Article: Winning connections? Special interests and the sale of failed banks (2022)
Working Paper: Winning Connections? Special Interests and the Sale of Failed Banks (2017)
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