Lobbying and lending by banks around the financial crisis by.

Despite the unprecedented levels of liquidity provided by the Federal Reserve to banks during the 2007-2008 financial crisis, lending by banks slowed dramatically during and after that global episode. In this study, we propose that, given capital constraints, the lobbying expenditures by banks to combat Dodd-Frank might have crowded out lending activity. A variety of univariate and multivariate tests show that while lending by banks fell significantly around the financial crisis, lobbying rose dramatically. Our results also show that bank lobbying and lending are imperfect substitutes during non-crisis periods. Such substitutability likely is explained by the value perceived in the political connections gained through lobbying, such as the ability to influence regulation, preferential treatment on supervisory or enforcement decisions, and protection against adverse shocks in the form of government bailouts.