TY - JOUR AU - Igan, Deniz AU - Mishra, Prachi AU - Tressel, Thierry TI - A Fistful of Dollars: Lobbying and the Financial Crisis JF - National Bureau of Economic Research Working Paper Series VL - No. 17076 PY - 2011 Y2 - May 2011 DO - 10.3386/w17076 UR - http://www.nber.org/papers/w17076 L1 - http://www.nber.org/papers/w17076.pdf N1 - Author contact info: Deniz Igan International Monetary Fund Research Department, HQ1-9-700 700 19th St NW Washington, DC 20431 Tel: 202-623-4743 E-Mail: digan@imf.org Prachi Mishra 700 19th Street NW Washington, DC 20431 USA E-Mail: pmishra@imf.org Thierry Tressel International Monetary Fund 700, 19th Street NW Washington DC 20431 Europe E-Mail: ttressel@imf.org M1 - published as Deniz Igan, Prachi Mishra, Thierry Tressel. "A Fistful of Dollars: Lobbying and the Financial Crisis," in Daron Acemoglu and Michael Woodford, editors, "NBER Macroeconomics Annual 2011, Volume 26" University of Chicago Press (2012) M3 - presented at "26th Annual Conference on Macroeconomics", April 8-9, 2011 AB - Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions' lobbying and mortgage lending activities to answer this question. We find that lobbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008. In particular, lenders lobbying more intensively on issues related to mortgage lending and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing originations of mortgages. Moreover, delinquency rates in 2008 were higher in areas where lobbying lenders' mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during the rescue of Bear Stearns and the collapse of Lehman Brothers, but positive abnormal returns when the bailout was announced. Finally, we find a higher bailout probability for lobbying lenders. These findings suggest that lending by politically active lenders played a role in accumulation of risks and thus contributed to the financial crisis. ER -