Lobbying on Regulatory Enforcement Actions: Evidence from Banking

There is growing concern, but still little systematic evidence, about the incidence and drivers of lobbying efforts made by the U.S. banking industry. This paper documents the relationships between lobbying, regulatory oversight, and bank risk taking. Using a large sample of commercial and savings banks, I find that lobbying banks are less likely to be subject to a severe enforcement action, suggesting that banks engage in lobbying to gain preferential treatment. Among the lobbying dimensions studied, lobbyists with prior employment in public offices are more effective at reducing the probability of an action, especially in period of intense enforcement activity. These findings are robust to controlling for supervisory ratings and account for endogeneity concerns by employing instrumental variables strategies. I also show an increase in default and credit risk at lobbying banks. Overall, these results appear rather inconsistent with an information-based explanation of bank lobbying, but consistent with the capture theory of regulation.