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Cross-ideological coordination by private interests: Evidence from mortgage market regulation under Dodd-Frank

Published online by Cambridge University Press:  07 October 2019

Abstract

Rulemaking pursuant to the 2010 Dodd-Frank Act provides a useful setting to assess theories of interest group influence. In the wake of the financial crisis, Congress delegated new rulemaking authority to federal agencies to regulate mortgage markets. A critical aspect of this new regulatory regime engendered significant controversy from affected interests: “credit risk retention” would require sponsors of asset-backed securities to retain a stake in the risk of securitized assets. Contrary to unrefined industry capture-based accounts stressing the disproportionate role of larger, well-established regulated entities in setting policy, we find little evidence of sustained effort by large lenders to dilute regulatory standards via political investments. Rather, a diverse coalition of housing sector, community, and civil rights groups, backed by an ideologically diverse swath of legislators, forced substantial regulatory retrenchment. Our analysis suggests a more nuanced view of private influence, in which coordination plays a more substantial role than political investments alone.

Type
Research Article
Copyright
Copyright © V.K. Aggarwal 2019 and published under exclusive license to Cambridge University Press

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Footnotes

We gratefully acknowledge the helpful comments of David Brady, Charles Calomiris, and the participants at the Hoover Institution's Regulation and Rule of Law Conference on 4 March 2016 and Executive Power and Rule of Law Conference on June 10, 2016; as well as the suggestions of three anonymous referees. Steven Rashin provided excellent research assistance.

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