Political Ties = More Fed Money

Photograph by Victor J. Blue/Bloomberg

JPMorgan Chase & Co. company headquarters in New York.

In Washington, it always comes down to who you know. A new report says banks with political connections were more likely to get liquidity lifelines from the Federal Reserve during the financial collapse.

Financial institutions that spent more on lobbying were 10 percent to 17 percent more likely to receive emergency support than banks that didn’t, according to the report from the free-market Mercatus Center at George Mason University. And banks with ex-politicians or former Capitol Hill staffers on the payroll also were more likely to receive Fed lifelines, the report found.

The report’s author, Benjamin Blau, an associate economics professor at the Jon Huntsman School of Business at Utah State University, examined 677 banks, lining them up with Fed data and public lobbying disclosures.

Politically connected banks stayed in debt longer and borrowed more than nonconnected banks, he found.

Blau said the finding is important in part because the Fed is supposed to be politically independent.

“Support from the Fed should in theory be independent of the bank’s political connections,” Blau said in his report. “Its decision-making should be motivated by what the Fed perceives as being in the best interest of the credit markets and the economy in general.”

It’s certainly no surprise that big banks have big lobbying budgets. And all that schmoozing might, in fact, have had nothing to do with who got what from the Fed. The ability to get aid also correlated to bank size, the number of foreclosures it had on its books and other financial factors, Blau found.

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