Financial regulation: what the finance industry wants and how it gets it

点击翻译按钮获取中文摘要

Financial regulation aims to provide a foundation for a stable, competitive financial system, which serves the real economy and society. This objective is endangered if this financial regulation is captured by industry interests. The aim of this research project is to study the influence of the finance industry on new financial regulation. The main innovation of the project is a novel measure of financial sector policy preferences, an important prerequisite to assess lobby influence.The empirical identification of the effect of campaign contributions on policy choices faces a number of challenges. Firstly, one of the major problems is how to measure policy preferences of special interest groups. Secondly, contributions are endogenous. Politicians might cater to the financial sector because they received contributions, or because they were already committed to their views. The project addresses these empirical challenges by constructing a new measure of financial sector policy preferences using quantitative textual analysis methods and a dataset with 1700 letters of financial interest groups to the US congress containing their position on financial regulation bills. This novel measure allows studying political catering to financial sector interest using a large number of bills over a long period, while existing studies focus only on one or just a few policy issues. This method improves external validity and allows accounting for the effects of party activity and unobserved ideological preferences of politicians for pro-financial sector policies using politician fixed effects.