Lobbying on Regulatory Enforcement Actions: Evidence from Banking
Abstract: There is growing concern, but still little systematic evidence, about the incidence and drivers of lobbying efforts made by the U.S. banking industry. This paper analyzes the relationship between bank lobbying and supervisory decisions of regulators, and documents its moral hazard implications. From a large sample of commercial and savings banks, I find that lobbying banks are less likely to be subject to a severe enforcement action, suggesting that banks engage in lobbying to gain preferential treatment. These findings are robust to controlling for supervisory ratings and account for endogeneity concerns by employing instrumental variables strategies. I also show a decrease in performance and an increase in default and credit risk at lobbying banks. Overall, these results appear rather inconsistent with an information-based explanation of bank lobbying, but consistent with the theory of regulatory capture.
