Banks that spend money on lobbying or hire former regulators are more likely to get favourable treatment from their watchdog agency, according to a European Central Bank paper published on Wednesday.
While lobbying in the United States has been subject to extensive disclosure for years, European authorities only started to tighten the rules in recent months. Companies that want to meet with officials are now obliged to join a register and their meetings are logged.
The ECB paper, based on data from about 780 U.S. banks, found that lenders which have lobbied, hired a former regulator or government official, or are otherwise close to the authorities are less likely to face additional sanctions if their capital ratios fall below the minimum threshold.
They also tend to have higher Fitch Bank Support Ratings, meaning they are considered more likely to receive public-sector help if they are at risk of default, the paper found.
“Increasing lobbying expenditures raise the probability of preferential regulatory treatment, but even small lobbying expenditures prove to be effective,” authors Magdalena Ignatowski, Charlotte Werger and Josef Korte wrote in the paper.
“Lobbying becomes more effective by involving former politicians as lobbyists,” the paper said. “The effectiveness of proximity to the relevant legislative committee increases with the amount of campaign contributions from the financial industry that elected legislators receive.”
But lobbying and other sources of political influence cease to be effective when a bank finds itself in deep financial distress and faces being closed, the paper found.
The ECB research did not account for undeclared or indirect lobbying, such as that carried out by an association of banks, which means the real effect of lobbying might be even stronger, the authors wrote.
“Our evidence indicates that expenditures on lobbying are on the rise, and that banks are increasing their influence activities,” the authors of the paper wrote.
“It is important to be aware that regulatory treatment is not immune to the influence of banks, and that we might expect this influence to further increase.” (Reporting By Francesco Canepa, editing by Larry King)
Source: Reuters
