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A Fistful of Dollars: Lobbying and the Financial Crisis

Author/Editor: Igan, Deniz | Mishra, Prachi | Tressel, Thierry
Authorized for Distribution: December 1, 2009
Electronic Access: Free Full Text (PDF file size is 1,287KB)
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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.
 
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Series: Working Paper No. 09/287
Subject(s): Corporate sector | Economic models | Financial crisis | Financial institutions | Financial sector | Global Financial Crisis 2008-2009 | Governance | Housing | Legislation | Loans | Political economy
Author's keyword(s): Lobbying; financial crises; mortgage lending
 
English  
    Published:   December 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009287   Pages:   71
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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