Winning Connections? Special Interests and the Sale of Failed Banks

By Deniz O Igan, Thomas Lambert, Wolf Wagner, Quxian Zhang

November 22, 2017

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Deniz O Igan, Thomas Lambert, Wolf Wagner, and Quxian Zhang. Winning Connections? Special Interests and the Sale of Failed Banks, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Asset and liability management, Banking, Capital adequacy requirements, Distressed institutions, Expenditure, Financial institutions, Financial regulation and supervision, Liquidity indicators, Liquidity management, Loans

Keywords: Abnormal returns, Bank holding company, Bank resolution, Banking regulator, Bidding bank, Camels rating, Capital adequacy requirements, Capital ratio, Distressed institutions, Dummy variable, Failed bank, Failed banks, FDIC-run auction, Financial crisis, Liquidity management, Loans, Lobbying, Lobbying bank, Lobbying regulator, Rent seeking, State headquarters, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/262
Stock No:

WPIEA2017262
ISBN:

9781484330104
ISSN:

1018-5941

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