U-M Researchers Say Politics Guided Bank Bailout Allocations

Abayomi Azikiwe, editor of the Pan-African News Wire, covering the April 4, 2009 anti-war demonstration on Wall Street. (Photo: Alan Pollock)
Originally uploaded by Pan-African News Wire File Photos

Posted: Dec. 22, 2009

U-M researchers say politics guided bank bailout allocations

BY KATHERINE YUNG
FREE PRESS BUSINESS WRITER

Researchers from the University of Michigan have confirmed what many have long suspected: Politics played a key role in deciding which banks received billions in government bailout money and how much each one got.

According to a new study released Monday by Ran Duchin and Denis
Sosyura at the university's Ross School of Business, banks with strong political connections were more likely to benefit from the
government's $250-billion Capital Purchase Program, part of its
Troubled Asset Relief Program or TARP.

The study found that banks fared better if they had executives holding
board seats at any of the 12 Federal Reserve banks or if their
headquarters was located in the district of a U.S. House of
Representatives member serving on key finance committees. And the amount of government investment was "strongly related to banks'
political contributions and lobbying expenditures."

The findings are likely to intensify criticism of the bank bailout
program, which has already come under attack for aiding the biggest
banks while leaving many small and struggling ones without any help.

"Our results show that political connections play an important role in
a firm's access to capital," Sosyura, an assistant professor of
finance, said in a statement.

Contact KATHERINE YUNG: 313-222-8763 or kyung@freepress.com