Financial regulation: what the finance industry wants and how it gets it
Accounting and Finance
Final Report Abstract
This project studies the lobby influence of the financial sector on U.S. financial regulations. In a novel approach, we use stated policy positions by finance trade associations and consumer groups to examine their influence, from the introduction of the bill to the passing vote. Trade associations and consumer groups are vocal: they express their policy positions on specific bills in letters to Congress, and often have opposing positions. This enables us to directly link their campaign contributions to the legislative outcomes they publicly support or oppose. We code positions expressed in 631 finance trade associations and 257 consumer group letters pertaining to 821 bills scheduled for consideration in Congress over the period 1999 to 2018. Both trade associations and consumer groups send the vast majority of their letters before the bills reach the House floor, which highlights that interest groups often attempt to influence the early stages of the legislative process. To examine whether contributions influence the outcomes of the legislative process, we begin by relating the campaign contributions a Congress member received from finance trade associations supporting or opposing specific bills to the Congress member’s legislative behavior on those bills. To capture influence that occurs early in the legislative process, we study which Congress members introduce a bill, the committee vote, and the roll call floor vote on passage. We find that changes in trade association campaign contributions increase the likelihood of introducing bills and voting in line with the positions of finance trade association. Congress members with large trade association contributions are more likely to introduce and vote for finance trade association supported bills that are opposed by consumer groups. Congressional committees could facilitate repeated interactions, reputational development, and long-term relationships between interest groups and Congress members. We find that Congress members appointed to the Financial Services Committee increase the likelihood of introducing legislation supported by finance trade associations with 2.3 percentage points. In addition, we find that the direction of the effect reverses once a committee member retires from the committee. Next, we show that Financial Services Committee members are less likely to introduce legislation supported by consumer groups, suggesting that Congress members tilt their bill-sponsoring activity towards bills supported by trade associations and away from bills supported by consumer groups. More generally, our results suggest that a focus on roll-call voting alone does not fully capture the industry’s influence on the legislative process.
