Winning Connections? Lobbying and the Resolution of Failed Banks

We show evidence from failed-bank auctions that lobbying increases a bidder’s probability of winning by 26.4 percentage points. The transfer to lobbying bidders is substantial and is estimated at $7.4 billion for the Deposit Insurance Fund, which is equal to 16.4 percent of the total resolution losses. We also find that following the acquisition lobbying banks have worse operating and stock market performance than their non-lobbying counterparts, suggesting that lobbying results in a less efficient allocation of failed banks. Our results provide new insights into the bank resolution process and its political economy.