Lobbying on Regulatory Enforcement Actions: Evidence from U.S. Commercial and Savings Banks

Abstract

This paper analyzes the relationship between bank lobbying and supervisory decisions of regulators and documents its moral hazard implications. Exploiting bank-level information on the universe of commercial and savings banks in the United States, I find that regulators are 44.7% less likely to initiate enforcement actions against lobbying banks. This result is robust across measures of lobbying and accounts for endogeneity concerns by employing instrumental variables strategies. In addition, I show that lobbying banks are riskier and reliably underperform their nonlobbying peers. Overall, these results appear rather inconsistent with an information-based explanation of bank lobbying, but consistent with the theory of regulatory capture. This paper was accepted by Amit Seru, finance.