A Fistful of Dollars: Lobbying and the Financial Crisis

Author/Editor:

Deniz O Igan ; Thierry Tressel ; Prachi Mishra

Publication Date:

December 1, 2009

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2009/287

Subject:

Expenditure Financial crises Loans Mortgages Personal income

English

Publication Date:

December 1, 2009

ISBN/ISSN:

9781451874327/1018-5941

Stock No:

WPIEA2009287

Pages:

71

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