Bank Lobbying as a Financial Safety Net: Evidence from the Postcrisis U.S. Banking Sector.

This article investigates the role of bank lobbying as a financial safety net by analyzing its effect on creditors' beliefs and the occurrence of run-like equilibria in the U.S. banking sector. Using a structural model and data from 2003 to 2014, the study finds that increased bank lobbying is significantly associated with a lower probability of high-risk equilibria—situations where creditor panic could trigger bank runs—particularly after the 2008 financial crisis. The analysis shows that lobbying reduces perceived default risk and increases bank value through its influence on creditors’ expectations about government bailouts, with robustness checks and instrumental variable approaches supporting these findings. Counterfactual simulations reveal that the financial safety net effect of lobbying varies with policy measures such as deposit insurance expansions and interest rate caps, and the study finds no significant evidence that lobbying simultaneously increases risky bank behavior or financial fragility. These results suggest that while lobbying may raise operating costs, it also plays a stabilizing role by enhancing the credibility of government support in times of financial distress.