Banks with political ties got bailouts, study shows

Mon Dec 21, 2009 5:01pm EST

* Banks with influence got access to bailouts, more money

* Lobbying, political expenses coincided with bailouts

By Steve Eder

NEW YORK, Dec 21 (Reuters) - U.S. 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 U.S. 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 percent more likely to get bailouts through TARP's Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26 percent 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 criticized 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.

Those banks included Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N), and Morgan Stanley (MS.N) -- all of which repaid their bailouts in June.

Bank of America Co (BAC.N) and Citigroup Inc (C.N) more recently announced plans to pay back taxpayers.

Talbott also noted that $116 billion has been repaid with interest.

"This demonstrates the banks were excellent stewards of the taxpayer's money," Talbott said.

But a watchdog for the government's bailout, the special inspector general for TARP, said last month that the broader $700 billion bailout program "almost certainly" will result in an overall loss for taxpayers.

President Obama said in October that despite the bailout, there was still too little credit flowing to small businesses. (Reporting by Steve Eder; Editing by Gary Hill)

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Comments (20)
Maxwells wrote:
I’m shocked, shocked to find that gambling is going on in here!

Dec 21, 2009 9:00pm EST  --  Report as abuse
Painesright wrote:
“The banking industry has long been criticized for using political influence to obtain bailouts.”

How about, “The politicians have long been criticized for granting political favors in exchange for campaign contributions.”

If the politicians weren’t for sale, they couldn’t be bought.

Bankers are FAR from the only people who contribute to campaigns and expect something in return (SEIU comes to mind).

What came first, the chicken or the egg?

What came first, the political contributions or the corrupt politicians??

Dec 21, 2009 10:10pm EST  --  Report as abuse
tusseyrobert wrote:
Why college is a waste………two professor needed to figure out what anyone with an 8th grade education knows.

The whole thing has gone corrupt.

The problem is it is professors like these and others that laid the ground work for this corruption. None have ever would consider such topics as loyalty to the country, honor, or putting the nation and it’s people as a whole before self and special causes.

Dec 21, 2009 11:28pm EST  --  Report as abuse
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