Winning Connections? Special Interests and the Sale of Failed Banks

Abstract

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The distributional consequences of rent‐seeking

“…We focus on rent‐seeking in the financial sector, which, due to its size (see, e.g., Philippon, 2012, 2015) and complexity of transactions involved, is believed to relate to particularly intense lobbying and rent‐seeking activities (see, e.g., Igan & Lambert, 2019; Igan et al., 2012, 2017; Mazzucato, 2018; Stiglitz, 2012). 6 Evidence from, for example, Igan and Lambert (2019) and Igan et al.…”

“…6 Evidence from, for example, Igan and Lambert (2019) and Igan et al. (2012, 2017) links lobbying activities to such rent‐seeking, which can take many forms. For example, it may capture beneficial access to better credit conditions and directed loans or subsidies to specific industries or households; preferential access to investment in new or protected markets (including preferential treatment in failed‐bank auctions), or in real estate, that imply higher returns; laxer treatment in the supervision of financial intermediaries, or less costly enforcement actions (e.g., lower penalties); and guaranteed bailouts (thus reducing the downside risk and allowing higher risk, higher return investment).…”

“…Igan and Lambert (2019) and Igan et al. (2012, 2017) focus on the specific mechanisms linking rent‐seeking and lobbying in the banking/financial sector, and provide relevant empirical evidence suggesting that this lobbying is mainly related to rent‐seeking.…”

“…The importance of institutional quality for economic outcomes is widely accepted 1 . Recently, the literature has highlighted the role of the quality of institutions governing the financial sector, regarding activities to acquire influence (e.g., lobbying) and so extract extra rents (e.g., Igan & Lambert, 2019; Igan et al., 2012, 2017; Mazzucato, 2018; Stiglitz, 2012). Rent‐seeking activities imply social costs, efficiency losses, and poor macroeconomic performance 2 .…”