PAC Contributions from Sectors of the Financial Services Industry, 1998-2002
Bennett, Randall W., Loucks, Christine, Atlantic Economic Journal
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.
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. …