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Banks, risk and lobbying March 7, 2010

Posted by Jim Satterfield in Business & Society, Economics, Government.

In a working paper for the IMF, which is prefaced by a bit disclaiming that it actually represents the views of the IMF, we find this gem of a 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.

Aren’t we all just absolutely shocked?



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