US banks with political ties got bailouts

Wednesday, December 23, 2009
NEW YORK: US banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.

Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan’s Ross School of Business.

Banks with headquarters in the district of a US House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds.

Political influence was most helpful for poorly performing banks, the study found.

“Political connections play an important role in a firm’s access to capital,” Sosyura, a University of Michigan assistant professor of finance, said in a statement.

Banks with an executive who sat on the board of a Federal Reserve Bank were 31 per cent more likely to get bailouts through TARP’s Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26 per cent more likely to get capital purchase program funds.

As of late September, nearly 700 financial institutions had received bailouts of $205 billion under the capital purchase program, the study said. The banking industry has long been criticised for using political influence to obtain bailouts.

Scott Talbott, a senior vice president with industry lobbying group The Financial Services Roundtable, said the study was skewed because it did not exclude nine of the largest banks that were “strongly asked” by the government to take bailouts.