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

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.