I argue creditors, plausibly considering the link between bank lobbying and government bailouts, reflect the financial-safety-net aspect of bank lobbying. My structural estimation based on U.S. data suggests bank lobbying is negatively associated with the occurrence of a run-like equilibrium when a bank is subject to multiple equilibria. The estimated effect on bank risk and value is economically significant in the postcrisis U.S. banking sector. This result is consistent with the reduced-form evidence in this paper and has passed multiple robustness checks. Counterfactual simulations suggest the lobbying effect as a financial safety net would vary depending on policy responses to financial crisis.

Due to the government-driven mergers of large banks, many competing firms in Japan ended up borrowing from a common lender. Using firm-level data, we find that the capital investments of competing firms that share a common lender decrease by 15% of the mean. When a common lender can exercise its voice through its former employees serving as firms’ executive directors, investments fall significantly further. Competing firms that share a common lender increase markups and profitability ratios, suggesting that the lender induces strategic coordination among its borrowers to reduce their competitive pressures. Firms use saved resources from weaker competition for cash cushions.