A Fistful of Dollars: Lobbying and the Financial Crisis
International Monetary Fund, Dec 1, 2009 - Business & Economics - 71 pages
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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II Related Literature
III Empirical Approach
IV Data Description
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annual percentage rates anti-predatory lending laws applicants of loans associated Bank Bear Stearns coefficient correlation Countrywide Financial default delinquency rates Dependent variable dummy Economic Effect of Lobbying ex-ante ex-post expenditures on speciﬁc Federal financial crisis financial institutions ﬁxed effects Freddie Mac growth high-cost mortgages House or Senate income of applicants inﬂuence Instrumental Variables law H.R. lax lending standards lender fixed effects lender lobbying expenditures lender-MSA level lenders that lobby lending standards loan characteristics Loan-to-income ratio loans originated lobbying activities lobbying by financial lobbying firms lobbying lenders lobbying on specific Lobbying Report lobbyists Log assets Log income moral hazard mortgage lending mortgage loans MSA level MSA*year Never passed Never signed Number originated by lender passed by House percent Predatory Lending Predatory Mortgage Lending reﬂect related to mortgage relationship between lobbying rent-seeking retum securitization share of lender signed into law specific issues Table Treasury securities Yes No Yes Yes Yes Yes