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

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This paper argues that creditors reflect the financial-safety-net aspect of bank lobbying, plausibly considering the connection between bank lobbying and government bailouts. Using a structural approach, I show that bank lobbying is negatively associated with the occurrence of a run-like equilibrium, as is deposit insurance. The estimated effect on bank risk and value is economically significant in the post-crisis U.S. banking sector. This result is consistent with the reduced-form evidence and has passed multiple robustness checks. A counterfactual analysis suggests that the effect would be larger in the absence of the deposit-insurance expansion since the fall of 2008.