Winning connections? Special interests and the sale of failed banks

Deniz Igan, Thomas Lambert*, Wolf Wagner, Eden Quxian Zhang

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

We study how banks’ special interests affect the resolution of failed banks. Using a sample of FDIC auctions between 2007 and 2016, we find that bidding banks that lobby regulators have a higher probability of winning an auction. However, the FDIC incurs larger costs in such auctions, amounting to 24.8 percent of the total resolution losses. We also show that lobbying winners match less well with acquired banks and display worse post-acquisition performance than their non-lobbying counterparts, suggesting that lobbying interferes with an efficient allocation of failed banks. Our results provide new insights into the bank resolution process and the role of special interests.

Original languageEnglish
Article number106496
JournalJournal of Banking and Finance
Volume140
DOIs
Publication statusPublished - Jul 2022

Bibliographical note

Acknowledgement:
For useful comments and suggestions, we would like to thank an anonymous referee, an anonymous associate editor, Pat Akey
(discussant), Kentaro Asai, Geert Bekaert (the editor), Allen Berger, Eric de Bodt, Stephen Brown, Seungho Choi (discussant), JeanEdouard Colliard, Zhanhui Chen, Giovanni Dell’Ariccia, Enrica Detragiache, Bob DeYoung, Serdar Dinc, Andrew Ellul, Isil Erel, Joao Granja (discussant), Umit Gurun, Jean Helwege, Sole MartinezPeria, Gregor Matvos, Alan Morrison (discussant), Phong Ngo, Louis Nguyen (discussant), Sharyn O’Halloran (discussant), Lorenzo Pandolfi (discussant), George Pennacchi (discussant), Marcelo Pinheiro, Rodney Ramcharan, Brian Richter, Ulrich Schuwer (discussant), Amit Seru (discussant), Manpreet Singh (discussant), Denis Sosyura, Guillaume Vuillemey (discussant), David Yermack, seminar participants at ACPR-Banque de France, Erasmus University, FDIC, IESEG School of Management, IMF, Koç University, Monash University, University of Antwerp, University of Bonn, University
of Lille, University of Louvain-CORE, University of Melbourne, University Paris-Dauphine, as well as conference participants at the 2017 Bristol Banking and Financial Intermediation Workshop, 2017 Sorbonne University Conference on Public Authority and Finance, 2017 EFI Network Workshop, 2017 FIRN Annual Conference, 2018
CEPR Swiss Winter Finance Conference on Financial Intermediation, 2018 Chicago Financial Institutions Conference, 2018 Chicago Booth Stigler Center Conference on the Political Economy of Finance, 2018 Strasbourg Workshop on Finance and Politics, 2018 FINEST Spring Workshop, 2018 SKEMA Workshop on Economic
Growth, Innovation, and Finance, 2018 MoFiR Workshop on Banking, 2018 ISB Summer Research Conference in Finance, 2018 IWHFIN-FIRE Workshop on Challenges to Financial Stability, 2018 FIRN Banking and Financial Stability Meeting, 2018 CEPR Endless Summer Conference on Financial Intermediation and Corporate Finance,
2018 University of Oxford Conference on the Political Economy of Finance, 2019 Marstrand Finance Conference, and the 2019 EFA Meetings. Nicola Babarcich, Santanu Kundu, Han Zhou, and Huy Nguyen provided excellent research assistance. Lambert gratefully acknowledges the financial support from the Dutch Research Council (NWO grant VI.Veni.191E.055). The views expressed here are those of the authors and do not necessarily reflect those of the Bank for International Settlements. All errors are our own.

Publisher Copyright: © 2022 The Author(s)

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