A Fistful of Dollars: Lobbying and the Financial Crisis / Deniz Igan, Prachi Mishra, Thierry Tressel.

Format:

Book

Author/Creator:

Igan, Deniz.

Contributor:

Mishra, Prachi.

Tressel, Thierry.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17076.

NBER working paper series no. w17076

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

A Fistful of Dollars

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

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.

Notes:

Print version record

May 2011.