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With the financial bailout costing taxpayers trillions of dollars, a new study from the International Monetary Fund (IMF) reveals that in the US banks that spent the most money on lobbying the government were the biggest risk takers and the worst performers.

The IMF report found that the banks that lobbied the most had the most lax lending standards and the fastest growing mortgage loan portfolios.



“The finance industry and markets became a giant casino,” said UNI General Secretary Philip Jennings. “This study shows the banks invested heavily to bring about lax regulation to ensure that the house always wins; the politicians always fold and do the banks’ bidding; and taxpayers, customers and bank branch workers are always dealt the losing hand.”



Taxpayer funds were used to pay off the banks’ bad gambling debts, but instead of showing gratitude or contrition, finance executives are just pouring new money into lobbying once again for conditions that stack the odds in their favour and keeping regulators at bay to avoid taxes on bank bonuses.



“Their lobbying is preventing the necessary regulatory change from happening,” Jennings said. “We want to send a message to politicians that they must stand up for the citizens they represent. Taxpayers have lost their jobs, their homes and their pensions and now the banks that they saved are working against them.”



Jennings will carry this message in three weeks time to the world’s bankers at the World Economic Forum in Davos, Switzerland, where the theme is “Improve the State of the World: Rethink, Redesign, Rebuild”.



“We need politicians to stand strong and rethink their commitment to their constituents, redesign a fair regulatory system and rebuild a global economy for the people,” he said.



UNI’s finance unions have a global campaign for fair finance that includes calls for comprehensive global regulation of the industry as well as mechanisms to protect workers’ rights, including their right to give customers good advice.



The IMF report shows that “political influence of the financial industry can be a source of systemic risk” and that to prevent future crises the industry should have less political influence or, at the very least, there should be more monitoring of their lobbying efforts.



UNI believes that the influence of financial companies’ lobbying is not only felt in the US but also in Europe and in other countries around the world.



Unions will ask the European Commission and the European Parliament, regulators and national governments to commission a similar study in Europe. They will also urge the IMF, OECD and Financial Stability Forum to address this matter globally.



The current discussion on financial regulation among the G20 countries shows that the influence of the cartel of finance companies over regulation has not been broken, UNI said. Companies’ views are sought primarily and they dominate the discussions. Their interests take precedence while the concerns of customers, taxpayers and bank branch workers are often ignored.



“Bank workers are forced by unrealistic quota systems to push high-priced, high-profit lending products to customers who cannot afford them and often do not understand how they work. This has wreaked havoc on the global financial system,” said Oliver Roethig, Head of UNI Finance.



UNI believes all stakeholders need to be involved and play a significant role in shaping the system, especial when it comes to creating mechanisms for regulation and supervision. This should have nothing to do with the lobbying funds at your disposal. In Europe, the European Commission’s proposal to have a balanced representation of industry, consumers and unions in the consultative bodies of the future financial regulatory bodies is a first step.





Conclusion from IMF report:



This paper studies the relationship between lobbying by financial institutions and mortgage lending. To the best of our knowledge, this is the first study documenting how lobbying may have contributed to the accumulation of risks leading the way to the current financial crisis. We carefully construct a database at the lender level combining information on loan characteristics and lobbying expenditures on laws and regulations related to mortgage lending (such as consumer protection laws) and securitization. We show that lenders that lobby more intensively on these specific issues have (i) more lax lending standards measured by loan-to-income ratio, (ii) greater tendency to securitize, and (iii) faster growing mortgage loan portfolios. Ex post, delinquency rates are higher in areas in which lobbying lenders’ mortgage lending grew faster, and, during key events of the crisis, these lenders experienced negative abnormal stock returns. These findings seem to be consistent with a moral hazard interpretation whereby financial intermediaries lobby to obtain private benefits, making loans under less stringent terms. Moral hazard could emerge because they expect to be bailed out when losses amount during a financial crisis or because they privilege short-term gains over long-term profits. Under such an interpretation, specialized rent-seeking and short-termism might justify reining in lobbying activities or public oversight of optimal contracts in the financial industry. Yet, it cannot be ruled out that lenders lobby to inform the policymaker and shocks out of their control lead to riskier lending and undesirable outcomes. Under this interpretation, lobbying by the financial industry can be an integral part of informed policymaking. With the caveat that empirical evidence cannot single out one interpretation as the true explanation, our analysis suggests that the political influence of the financial industry can be a source of systemic risk. Therefore, it provides some support to the view that the prevention of future crises might require weakening political influence of the financial industry or closer monitoring of lobbying activities to understand the incentives behind better."



(Deniz Igan, Prachi Mishra, and Thierry Tressel. “A Fistful of Dollars: Lobbying and the Financial Crisis”. IMF Working Papers, WP/09/287, 1.12.2009.)



You can find the full report under "attached files" or on the IMF website here.