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A Fistful of Dollars: Lobbying and the Financial Crisis

A Fistful of Dollars: Lobbying and the Financial Crisis by Deniz Igan
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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.
International Monetary Fund; December 2009
71 pages; ISBN 9781452726847
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Title: A Fistful of Dollars: Lobbying and the Financial Crisis
Author: Deniz Igan; Thierry Tressel; Prachi Mishra