A Fistful of Dollars: Lobbying and the Financial Crisis

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International Monetary Fund, Dec 1, 2009 - Business & Economics - 71 pages
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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.
 

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Contents

I Introduction
4
II Related Literature
6
III Empirical Approach
8
IV Data Description
15
V Results
19
VI Conclusion
26
References
28
Tables
32
Figures
46
Appendix
48
Table
63
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