Mobile Edition
Print
Get the Mag
Weekly UpdatesIntroduction
The purpose of this paper is to examine the relationship between campaign contributions from political action committees (PACs) representing the financial services industry and membership on Congressional committees from 1998-2002. Congress considered and passed significant legislation affecting the financial services industry during this period. For instance the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 relaxed many restrictions on commercial banks' securities and insurance activities. Securities firms and insurance companies were allowed to buy commercial banks and banks were allowed to underwrite securities and insurance. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) affected the financial services industry because, in part, it contained strong measures to detect and prevent international money laundering. The Sarbanes-Oxley Act of 2002 was enacted to oversee accounting firms and ensure the independence of audits. In addition, the budget of the Securities and Exchange Commission was increased to provide for closer supervision of the securities market. It would seem that this legislative activity would attract the attention of PACs trying to gain access to the debates about these issues and/or attempting to influence the outcomes of the legislation.
There is a growing body of literature suggesting PACs attempt to influence public policy by disproportionately contributing to members of the committees with oversight responsibility for the industry represented by the PAC. The model used below assumes PACs will concentrate their campaign contributions where they think the money will be most effective. The primary focus of this paper is the relationship between campaign contributions from PACs representing various sectors of the financial services industry and House committee membership. The hypothesis tested is whether the pattern of the PAC contributions supports the proposition that committee membership confers monetizable power to congressmen.
Literature Review
The United States Congress has developed an institutional structure where much of the legislative work is done by committees with specific jurisdictions [Weingast and Marshall (1988); Weingast and Moran (1983)]. This division of labor has given members of particular committees more power over issues dealing with the committee's responsibilities than the average legislator without membership on the committee. As Grier and Munger (1991, p. 25) note "committees in Congress, and particularly in the House of Representatives, possess disproportionate power over the policy areas in their respective jurisdictions, have the right to hold hearings, and recommend budget allocations for the bureaus in their jurisdiction." Committees are gatekeepers in the sense that they control the content and timing of the legislation that reaches the floor and have the ability to keep legislation from ever reaching the floor.
If PACs recognize committee membership confers disproportionate power over their topics of interest, it might be expected for them to try to influence committee decisions by concentrating campaign contributions on members of committees with jurisdiction over these topics. For instance, financial services industry PACs would be expected to focus their contributions on members of the House Committee on Financial Services (previously called the Committee on Banking, Finance, and Urban Affairs; hereafter referred to as the House Banking Committee) the committee with major oversight responsibilities for this industry. The House Ways and Means Committee's jurisdiction over tax issues may interest members of the financial services industry. Energy and Commerce Committee membership may influence contributions from the securities and investment subgroup,
since this committee has oversight of securities and exchanges.
There are many empirical works on the relationship between campaign contributions and committee membership. Some studies find a positive relationship between relevant committee membership and campaign contributions, while others do not find any link. Some of those not finding a relationship between House committee membership and PAC contributions are Regens, Elliot, and Gaddie (1991), Poole and Romer (1985), and Gopoian (1984). Regens, Elliot, and Gaddie analyze PAC contributions from seven industries impacted by environmental regulation for the 1978 and 1980 election cycles. They do not find that membership on a relevant House committee is related to PAC contributions. Poole and Romer use broad categories of PACs, such as labor union PACs and corporate PACs, to determine whether relevant House committee membership is related to PAC contributions for the 1979-1980 election cycle. They find little effect of committee membership except for cooperative PACs. Poole and Romer speculate the lack of significance of the committee variables may be due to the diverse groups making up their broad PAC categories. The cooperative PACs represent a relatively homogeneous group of agricultural interests. Gopoian finds no relationship between oil company, labor union, and auto company PACs and relevant House Committee membership in 1978, although he does find a positive and significant relationship for defense industry PACs.
Grier, et al. (1990) and Grier and Munger (1993) study the relationship between Senate committee membership and PAC contributions. They use broadly defined groups of PACs such as corporate, trade association, or labor PACs, and conclude there is little or no support for the proposition that relevant committee membership is important for PAC contributions to senators.
Some studies do find relevant House committee membership is an important determinant of PAC campaign contributions; these include Kroszner and Stratmann (1998, 2005), Bennett and Loucks (1994, 1996), Grier and Munger (1991, 1993), Stratmann (1991), and Munger (1989). Kroszner and Stratmann (1998) find contributions from the financial services industry are positively related to membership on the House Banking Committee in the 1980s and early 1990s. Bennett and Loucks (1996) also find that financial services industry PAC contributions are positively related to membership on the House Banking Committee and the House Ways and Means Committee. Bennett and Loucks (1994) find that House Banking Committee membership is positively related to the savings and loan and the finance industries' PAC contributions for the 1984, 1986, and 1988 election cycles.
Grier and Munger find, unlike their work for the Senate, contributions from their broadly defined groups of PACs are generally positively related to relevant committee membership in the House. Stratmann finds agricultural PAC campaign contributions are positively related to House Agriculture Committee membership in the 1980s. Munger finds that corporate PAC contributions are related to relevant House Committee membership. Kroszner and Stratmann (2005) find tenure on House committees is positively related to the percentage of repeat corporate PAC contributors. They attribute this to reputation building due to repeated interaction. PACs want to contribute to those they can rely on to support their interests.
Loucks (1996) and Bennett and Loucks (1996) find relevant Senate committee membership is important for PAC campaign contributions. Loucks finds PAC contributions from the savings and loans and the finance industry are positively related to membership on the Senate Banking Committee for the 1984, 1986, and 1988 election cycles. Bennett and Loucks find that financial services industry PAC contributions are significantly and positively related to membership on the Senate Banking Committee as well as the Senate Finance Committee. The authors state that one reason they find that Senate committee membership affects PAC contributions, while Grier and Munger do not, may be that the interest groups making up the PACs are much less broadly defined and, therefore, more homogeneous in these latter works.
The question remains whether PAC contributions solely provide access or influence congressional activities, such as voting behavior. Evidence that campaign contributors can influence congressional voting behavior is provided by Stratmann (2002). He finds that contributions from the financial services industry did influence voting behavior of members of the House. Specifically, changes in contributions are significantly related to changes in voting from the 1991 vote to repeal the Glass-Steagall Act and the 1998 vote to repeal the Act for the congressmen that participated in both votes.
This paper differs from previous work by focusing on many narrowly defined groups of PACs related to the financial services industry. Separate analysis is done for commercial bank PACs, credit union PACs, and so on. This paper also includes all the standing committees of the House and covers three relatively recent time periods.
Model and Data
The Center for Responsive Politics provided a list of PACs associated with the finance, insurance, and real estate industry (financial services industry) for the 1998, 2000, and 2002 election cycles. This broad industry group contains nine subgroups: commercial banks, savings and loans, credit unions, securities and investment companies, finance/credit companies, insurance companies, real estate firms, accountants, and miscellaneous finance organizations. The seven subgroups analyzed below exclude accountants and miscellaneous finance organizations. This paper considers the distribution of PAC contributions to members of the House of Representatives from each of these groups over the three election cycles (1997-1998, 1999-2000 and 2001-2002). Using data obtained from the Center for Responsive Politics, adjusted for inflation, we determined the total real contributions from the PAC subgroups identified above to each member of the House of Representatives during each of the election cycles.
FEED