Under-performing banks that are politically connected received more bailout funds, according to a study by the University of Michigan’s Ross School of Business.
According to the report, banks located in districts with House members serving on financial committees had a 26 percent increase in the funding they received under the Troubled Asset Relief Program. Likewise, bank executives holding a board seat at a Federal Reserve Bank increased their likelihood of receiving bailout money by 31 percent.
Applications for the largest TARP initiative, the Capital Purchase Program, are reviewed by the Federal Reserve–presenting a potential conflict of interest when bank executives are on the board. CPP aided 681 financial institutions with $204 billion as of September 2009.
The study also found that banks that made campaign contributions and spent more money on lobbying received more money from the government bailout.
Companies in the financial industry contributed $475 million–more than ever before–in 2008. Lobbyists were paid $76 million by 26 out of 300 companies receiving TARP aid that year, according to OpenSecrets.org.
Since larger banks receive larger allocations and presumably have more political connections, the study repeated its analysis excluding the largest banks and found similar results. Overall, states with larger populations, such as California and Northeast and Mid-Atlantic states, benefited the most from the bailout.