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.

Additional Metadata
Keywords Bank resolution, failed banks, financial crisis, Lobbying, rent seeking
JEL Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior (jel D72), Studies of Particular Policy Episodes (jel E65), Government Policy and Regulation (jel G18), Banks; Other Depository Institutions; Mortgages (jel G21)
Persistent URL hdl.handle.net/1765/105627
Series CEPR Discussion Paper series {CEPR charges a fee of $5.00 for this paper}
Citation
Igan, D, Lambert, T, Wagner, W.B, & Zhang, Q. (2017). Winning Connections? Special Interests and the Sale of Failed Banks (No. 12440). CEPR Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/105627