Political Influence and TARP Investments in Credit Unions

The politics of bailouts: Estimating the causal effects of political connections on corporate bailouts during the 2008–2009 US financial crisis

“…Receiving TARP funds had its downsides as well—it was subject to limits on executive pay, bonuses, and golden parachutes, in addition to losses of some tax benefits. However, perceptions arose that the selection criteria were not clear enough and that too much power was given to the Treasury (Veronesi and Zingales 2010 ), that it favored institutions that would survive anyway or were too “big to fail” (Dash 2008 ), and that some members of Congress were funneling resources to banks in their own districts (Pana and Wilson 2012 ).…”

“…Finally, prior research clearly suggests that individual members of Congress exerted some sort of influence over the entire process (Mian et al. 2010 ; Pana and Wilson 2012 ), implying that even though the final decision about what institutions receive funding was made by the Treasury following a clear-cut formula, the decision itself was subject to influence by a number of actors. Financial institutions had two ways of trying to influence funding allocations: they lobbied or donated campaign funds to members of Congress (including both House and Senate members), or they exploited their personal connections to anyone inside the Treasury, the Fed, or Congress to try to get better deals for themselves.…”

“…Receiving TARP funds had its downsides as well-it was subject to limits on executive pay, bonuses, and golden parachutes, in addition to losses of some tax benefits. However, perceptions arose that the selection criteria were not clear enough and that too much power was given to the Treasury (Veronesi and Zingales 2010), that it favored institutions that would survive anyway or were too "big to fail" (Dash 2008), and that some members of Congress were funneling resources to banks in their own districts (Pana and Wilson 2012). According to Duchin and Sosyura (2012), out of 537 publicly traded firms that were eligible for the Capital Purchase Program (CPP) 2 (the total number exceeded 900 institutions, but the authors focused only on the subsample of public firms), 80% applied for the program, most of which were approved and received funding (only 15% rejected it after being approved).…”