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Too big to be ignored. Monetary policy and the interest rate preferences of banks.
Abstract
Scholarship on the Federal Reserve argues that banks do not lobby on interest rates, holding that banks would not waste scarce resources advocating for a position that central banks already know they embrace. I challenge this assumption theoretically and empirically. Theoretically, I argue that banks have different interests and influence on monetary policy, with the largest banks having the most influence. Empirically, I run a firm-level panel regression on a novel dataset drawn from the balance sheets of banks that have sat on the Federal Advisory Council (FAC) between 2003 and 2019. The two main contributions are that for all sizes of banks, only the four largest banks that sit on the FAC influence the Federal Reserve on monetary policy; this influence can lead to the Federal Funds rate falling as well as rising. However, for influence to occur, banks must be sitting on the FAC, and the salience of financial regulation must be low. This finding generalizes to other financial regulation environments where, although the exit options of banks may be limited, the health of large banks is still necessary for monetary policy to be transmitted effectively. Therefore, the lobbying of very large banks may have an outsize role in setting policy in times of quiet politics, regardless of outside options.
Keywords: Federal Advisory Council; Federal Reserve; structural power; financialization; lobbying
Power Politics in the Taxation of Transnational Corporations
Abstract
What are the circumstances under which a country’s power to influence global tax policy positively impacts its ability to consolidate infrastructural power at the domestic level? The Biden administration made signing up to the OECD base erosion and profit shifting (BEPS) minimum global tax-rate initiatives a central policy plank upon entering government, and the United States used its considerable foreign policy power—state power wielded externally—to push 141 states into signing the OECD BEPS agreement. Yet, getting these tax plans passed through Congress has proved to be no fait accompli, and there are there are good reasons to believe they may never pass. At the same time, Ireland was using its meagre foreign policy power to shape the BEPS proposals to its benefit, because, as a small offshore financial centre, it is economically reliant on the minimal taxation of multinationals to maintain its infrastructural power. Despite the vast gulf in resources, Ireland was much better able to use its foreign policy power to consolidate its infrastructural power, whereas the United States, though more influential over global tax policy, was unable to transform this advantage into infrastructural power consolidation. Given that a state only needs to be as powerful as is necessary to achieve its intended results, this paper highlights how states with little foreign policy power may be able to protect exogenously contingent infrastructural power. In contrast, I aim to highlight that despite high levels of foreign policy power, domestic political polarization can still hamstring the domestic plans of large states such as the US, if their infrastructural power is endogenously contingent.
Dr. Ciarán O'Flynn 