This paper analyzes the relationship between bank lobbying and supervisory decisions of regulators, and documents its moral hazard implications. Exploiting bank-level information on the universe of commercial and savings banks in the United States, I find that regulators are 44.7 percent less likely to initiate enforcement actions against lobbying banks. This result is robust across measures of lobbying, and accounts for endogeneity concerns by employing instrumental variables strategies. In addition, I show that lobbying banks are riskier and reliably underperform their non-lobbying peers. Overall, these results appear rather inconsistent with an information-based explanation of bank lobbying, but consistent with the theory of regulatory capture.

Additional Metadata
Keywords banking supervision, enforcement actions, lobbying, moral hazard, regulatory capture, risk taking
JEL Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior (jel D72), Banks; Other Depository Institutions; Mortgages (jel G21), Government Policy and Regulation (jel G28)
Persistent URL hdl.handle.net/1765/100776
Journal Management Science
Note This paper is based on my dissertation.
Citation
Lambert, T. (2017). Lobbying on Regulatory Enforcement Actions: Evidence from U.S. Commercial and Savings Banks. Management Science, Accepted. Retrieved from http://hdl.handle.net/1765/100776