Does political influence distort banking regulation? Evidence from the US

This study examines the interplay between political influence and regulatory decision making. Political influence is captured based on whether a bank is headquartered in a state where an elected official holds a chair position on a congressional committee related to the banking and financial services industry. Using data of US commercial banks over the period 2000-2015, we show that our measure of political influence reduces a bank’s probability of receiving a formal regulatory enforcement action. Results are robust to the use of alternative model specifications and the sample restrictions. However, we find that various bank and environmental characteristics are important conditional factors.