Deniz Igan, Thomas Lambert, Wolf Wagner, Eden Quxian Zhang, 28 March 2018

When failed banks are sold, a would-be acquiring bank is more likely to win the auction if it spends money on lobbying. This column argues, however, that these acquirers are less effective at improving efficiency afterwards. This implies that lobbying has a double cost: it distorts the efficient allocation of failed banks, and it amplifies agency problems at the acquiring banks. Resolution frameworks will need strong accountability mechanisms and transparency to reduce this cost.

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