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A Fistful of Dollars: Lobbying and the Financial Crisis

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Listed:
  • Ms. Deniz O Igan
  • Mr. Thierry Tressel
  • Ms. Prachi Mishra

Abstract

Using detailed information on lobbying and mortgage lending activities, we find that lenders lobbying more on issues related to mortgage lending (i) had higher loan-to-income ratios, (ii) securitized more intensively, and (iii) had faster growing portfolios. Ex-post, delinquency rates are higher in areas where lobbyist' lending grew faster and they experienced negative abnormal stock returns during key crisis events. The findings are robust to (i) falsification tests using lobbying on issues unrelated to mortgage lending, (ii) a difference-in-difference approach based on state-level laws, and (iii) instrumental variables strategies. These results show that lobbying lenders engage in riskier lending.

Suggested Citation

  • Ms. Deniz O Igan & Mr. Thierry Tressel & Ms. Prachi Mishra, 2009. "A Fistful of Dollars: Lobbying and the Financial Crisis," IMF Working Papers 2009/287, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/287
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    More about this item

    Keywords

    WP; market share; lender-MSA level; loan characteristic; mortgage lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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