Bank Lobbying as a Financial Safety Net: Evidence from the Postcrisis U.S. Banking Sector

Abstract

Abstract I argue creditors, plausibly considering the link between bank lobbying and government bailouts, reflect the financial-safety-net aspect of bank lobbying. My structural estimation based on U.S. data suggests bank lobbying is negatively associated with the occurrence of a run-like equilibrium when a bank is subject to multiple equilibria. The estimated effect on bank risk and value is economically significant in the postcrisis U.S. banking sector. This result is consistent with the reduced-form evidence in this paper and has passed multiple robustness checks. Counterfactual simulations suggest the lobbying effect as a financial safety net would vary depending on policy responses to financial crisis. (JEL E44, G01, G21, G28, G32, D72) Received May 4, 2022; editorial decision October 20, 2022 by Editor Isil Erel. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.