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The Reverse Revolving Door in the Supervision of European Banks

Author

Listed:
  • Stefano Colonnello

    (Ca' Foscari University of Venice; Halle Institute For Economic Research (IWH))

  • Michael Koetter

    (Halle Institute for Economic Research (IWH); Otto-von-Guericke University Magdeburg)

  • Alex Sclip

    (University of Verona)

  • Konstantin Wagner

    (Halle Institute for Economic Research (IWH))

Abstract

We show that around one third of executive directors on the boards of national supervisory authorities (NSA) in European banking have an employment history in the financial industry. The appointment of executives without a finance background associates with negative valuation effects. Appointments of former bankers, in turn, spark positive stock market reactions. This "proximity premium" of supervised banks is a more likely driver of positive valuation effects than superior financial expertise or intrinsic skills of former executives from the financial industry. Prior to the inception of the European Single Supervisory Mechanism, the presence of former financial industry executives on the board of NSA associates with lower regulatory capital and faster growth of banks, pointing to a more lenient supervisory style.

Suggested Citation

  • Stefano Colonnello & Michael Koetter & Alex Sclip & Konstantin Wagner, 2022. "The Reverse Revolving Door in the Supervision of European Banks," Working Papers 2022:12, Department of Economics, University of Venice "Ca' Foscari", revised 2023.
    • Handle: RePEc:ven:wpaper:2022:12
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    Keywords

    Revolving Doors; Banking Supervision; Conflicts of Interest;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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