Winning connections? Special interests and the sale of failed banks

https://doi.org/10.1016/j.jbankfin.2022.106496Get rights and content
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Abstract

We study how banks’ special interests affect the resolution of failed banks. Using a sample of FDIC auctions between 2007 and 2016, we find that bidding banks that lobby regulators have a higher probability of winning an auction. However, the FDIC incurs larger costs in such auctions, amounting to 24.8 percent of the total resolution losses. We also show that lobbying winners match less well with acquired banks and display worse post-acquisition performance than their non-lobbying counterparts, suggesting that lobbying interferes with an efficient allocation of failed banks. Our results provide new insights into the bank resolution process and the role of special interests.

Keywords

Auction
Bank resolution
Board connections
Failed banks
Financial crisis
Lobbying
Rent seeking
Special interests

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