Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154268
Authors: 
Ignatowski, Magdalena
Korte, Josef
Werger, Charlotte
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1835
Abstract: 
In this paper, we analyze how sources of political influence relate to the actual regulatory treatment of distressed banks and to the expectation of bank support provided by the government. We assemble a unique dataset that links U.S. banks’ sources of influence (e.g., lobbying expenditures, proximity to the relevant legislative committee, prior affiliation with regulatory or government institutions) to bank financial data, actual bank supervisory actions, and market-inferred expected government support. Employing this novel data, we cast some light on how regulatory decision making is affected by these sources of influence. Our findings suggest that banks’ influence matters for the regulatory treatment of distressed banks, as well as for the expectation of support regardless of bank distress. Several conditions increase the effectiveness of sources of influence in actual regulatory treatment: Lobbying activities are more effective with increasing lobbying expenditures, deteriorating capital ratios, and with the aid of former politicians.
Subjects: 
bank regulation
bank sources of influence
lobbying
Prompt Corrective Action
regulatory discretion
JEL: 
D72
G21
G28
ISBN: 
978-92-899-1648-6
Document Type: 
Working Paper

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