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Banking on Politics: When Former High-ranking Politicians Become Bank Directors

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  • Matías Braun
  • Claudio Raddatz

Abstract

New data are presented for a large number of countries on how frequently former high-ranking politicians become bank directors. Politician-banker connections at this level are relatively rare, but their frequency is robustly correlated with many important characteristics of banks and institutions. At the micro level, banks that are politically connected are larger and more profitable than other banks, despite being less leveraged and having less risk. At the country level, this connectedness is strongly negatively related to economic development. Controlling for this, the analysis finds that the phenomenon is more prevalent where institutions are weaker and governments more powerful but less accountable. Bank regulation tends to be more pro-banker and the banking system less developed where connectedness is higher. A benign, public-interest view is hard to reconcile with these patterns. Copyright The Author 2010. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Matías Braun & Claudio Raddatz, 2010. "Banking on Politics: When Former High-ranking Politicians Become Bank Directors," World Bank Economic Review, World Bank Group, vol. 24(2), pages 234-279, June.
  • Handle: RePEc:oup:wbecrv:v:24:y:2010:i:2:p:234-279
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    File URL: http://hdl.handle.net/10.1093/wber/lhq007
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    Cited by:

    1. Lambert, Thomas, 2015. "Lobbying on Regulatory Enforcement Actions: Evidence from Banking," HIT-REFINED Working Paper Series 28, Institute of Economic Research, Hitotsubashi University.
    2. Grossman, Richard S. & Imai, Masami, 2016. "Taking the lord's name in vain: The impact of connected directors on 19th century British banks," Explorations in Economic History, Elsevier, vol. 59(C), pages 75-93.
    3. Jen-Sin Lee & Chu-Yun Wei, 2012. "Types of Shares and Idiosyncratic Risk," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S3), pages 68-95, September.
    4. Hryckiewicz, Aneta, 2014. "The problem with government interventions: The wrong banks, inadequate strategies, or ineffective measures?," MPRA Paper 64074, University Library of Munich, Germany.
    5. Maria Camila De-La-Hoz & Carlos Pombo & Rodrigo Taborda, 2018. "Does board diversity affect institutional investor preferences? Evidence from Latin America," DOCUMENTOS CEDE 015991, UNIVERSIDAD DE LOS ANDES-CEDE.
    6. repec:ecb:ecbrbu:2018:0042:1 is not listed on IDEAS
    7. Nys, Emmanuelle & Tarazi, Amine & Trinugroho, Irwan, 2015. "Political connections, bank deposits, and formal deposit insurance," Journal of Financial Stability, Elsevier, vol. 19(C), pages 83-104.
    8. Jen-Sin Lee & Chu-Yun Wei, 2012. "Types of Shares and Idiosyncratic Risk," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S3), pages 68-95, September.
    9. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.
    10. repec:eee:advacc:v:30:y:2014:i:2:p:413-424 is not listed on IDEAS

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