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Shocker! Banks with Lobbying Ties to Pols Get Bailouts!

Posted By Barry Ritholtz On December 22, 2009 @ 12:30 pm In Bailouts,Credit,Politics | Comments Disabled

“Our results show that political connections play an important role in a firm’s access to capital. The effects of political ties on federal capital investment are strongest for companies with weaker fundamentals, lower liquidity and poorer performance — which suggests that political ties shift capital allocation towards underperforming institutions.”

-Ran Duchin and Denis Sosyura, University of Michigan School of Business

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File this one under “Duh!”

U.S. banks that spent more money on lobbying, were politically connected with the Fed, or had close ties with Pols, were more likely to get government bailout money.

That stunner is according to a new study released this week by two professors at the University of Michigan, Ross School of Business.

Profs Ran Duchin and Denis Sosyura paper also found that  “TARP investment amounts” were positively correlated to banks’ political contributions and lobbying expenditures. Overall, the effect of political influence was strongest for the most poorly performing banks.

Here’s a Reuter’s excerpt:

“U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.

Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan’s Ross School of Business.

Banks with headquarters in the district of a U.S. House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds.

Political influence was most helpful for poorly performing banks, the study found.

Banks with an executive who sat on the board of a Federal Reserve Bank were 31% more likely to get bailouts through TARP’s Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26% more likely to get capital purchase program funds.”

Is there anyone in this country that finds this data remotely surprising . . . ?

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Sources:
Banks and Bailouts: Playing politics? [1]
Ran Duchin and Denis Sosyura
University of Michigan, 12/21/2009
Ross professors

http://www.bus.umich.edu/NewsRoom/ArticleDisplay.asp?news_id=18270

Banks with political ties got bailouts, study shows [2]
Steve Eder
Reuters, Dec 21 2009

http://www.reuters.com/article/idCNN2124009320091221?rpc=44



Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2009/12/shocker-banks-with-lobbying-ties-to-pols-get-bailouts/

URLs in this post:

[1] Banks and Bailouts: Playing politics?: http://www.bus.umich.edu/NewsRoom/ArticleDisplay.asp?news_id=18270

[2] Banks with political ties got bailouts, study shows: http://www.reuters.com/article/idCNN2124009320091221?rpc=44

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