Banks, risk and lobbying March 7, 2010Posted 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 lobbyingmore on issues related to mortgage lending (i) had higher loan-to-income ratios, (ii) securitized moreintensively, and (iii) had faster growing portfolios. Ex-post, delinquency rates are higher in areaswhere lobbyist’ lending grew faster and they experienced negative abnormal stock returns during keycrisis events. The findings are robust to (i) falsification tests using lobbying on issues unrelated tomortgage 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?