A Fistful of Dollars: Lobbying and the Financial Crisis

By Deniz O Igan, Thierry Tressel, Prachi Mishra

December 1, 2009

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Deniz O Igan, Thierry Tressel, and Prachi Mishra. A Fistful of Dollars: Lobbying and the Financial Crisis, (USA: International Monetary Fund, 2009) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using detailed information on lobbying and mortgage lending activities, we find that lenders lobbying more on issues related to mortgage lending (i) had higher loan-to-income ratios, (ii) securitized more intensively, and (iii) had faster growing portfolios. Ex-post, delinquency rates are higher in areas where lobbyist' lending grew faster and they experienced negative abnormal stock returns during key crisis events. The findings are robust to (i) falsification tests using lobbying on issues unrelated to mortgage 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.

Subject: Expenditure, Financial crises, Loans, Mortgages, Personal income

Keywords: Lender-MSA level, Loan characteristic, Market share, Mortgage lending, WP

Publication Details

Pages:

71
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/287
Stock No:

WPIEA2009287
ISBN:

9781451874327
ISSN:

1018-5941

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