Too big to ignore: The Federal Advisory Council, monetary policy, and the interest rate preferences of banks

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 by arguing that banks have different interests and influence on monetary policy, with the largest banks having the most influence. 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 shows how the lobbying of very largest banks has an outsize role in setting policy in times of quiet politics, regardless of outside options.