A Fistful of Dollars: Lobbying and the Financial Crisis

Deniz Igan, Prachi Mishra and Thierry Tressel ()

No 17076, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions' lobbying and mortgage lending activities to answer this question. We find that lobbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008. In particular, lenders lobbying more intensively on issues related to mortgage lending and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing originations of mortgages. Moreover, delinquency rates in 2008 were higher in areas where lobbying lenders' mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during the rescue of Bear Stearns and the collapse of Lehman Brothers, but positive abnormal returns when the bailout was announced. Finally, we find a higher bailout probability for lobbying lenders. These findings suggest that lending by politically active lenders played a role in accumulation of risks and thus contributed to the financial crisis.

JEL-codes: G21 P16 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-cfn and nep-pke
Note: ME POL
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Citations: View citations in EconPapers (40)

Published as Deniz Igan & Prachi Mishra & Thierry Tressel, 2012. "A Fistful of Dollars: Lobbying and the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 195 - 230.
Published as A Fistful of Dollars: Lobbying and the Financial Crisis , Deniz Igan, Prachi Mishra, Thierry Tressel. in NBER Macroeconomics Annual 2011, Volume 26 , Acemoglu and Woodford. 2012

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Related works:
Chapter: A Fistful of Dollars: Lobbying and the Financial Crisis (2011)
Working Paper: A Fistful of Dollars: Lobbying and the Financial Crisis (2009)
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