Politicians as Bankers. The Mechanisms and Consequences of Politically Influenced Banking

Linkages between politics and banks are prevalent in developing and advanced countries and take various shapes. Among the more overt forms of political interference is direct political control over individual banks. Yet, the channels through which politicians exert control over banks and how they benefit from ties to banks is not entirely clear. This dissertation uses granular panel data from politically influenced and publicly owned banks in Germany and Spain and conducts a systematic, quantitatively rigorous analysis of the mechanisms and political consequences of political control over banks. The cumulative dissertation addresses three related questions: chapter 2 asks whether appointments to banks are politically motivated and considers its potential implications for bank managers’ career incentives. It looks at appointment patterns of bank managers in formally independent Spanish savings banks and finds that banks’ managers face an increased turnover risk shortly after elections and under new governments. Coalition partners and banks’ institutional architecture, however, constrain politicians’ ability to replace bank managers. The findings reveal political patronage in independent banks and show that politicians wield considerable influence even in banks that are not publicly owned. In chapter 3, the dissertation examines how politics within banks’ boards influences banks’ loan provision before elections and focuses on the role of politicians in boards of German savings banks. Using detailed information about political representation in bank boards and loan data, I show that election-induced lending is pronounced (i) when the chairperson of the bank holds a political office, (ii) when the board consists of many politicians, and (iii) when political board members come from the same party. The effect is driven by savings banks with political chairpersons from counties and from the conservative party. Finally, chapter 4 is concerned with the electoral consequences of politics-bank linkages and asks whether politicians benefit from those ties. I consider the case of German savings banks to assess whether board seats in banks give local politicians a leg up in elections. I find that mayors with a savings bank seat have higher odds of winning reelection than mayors without a seat and show that, in particular, conservative mayors benefit from bank connections. The dissertation, hence, presents empirical evidence about the politics of politically influenced banking unveiling the channels through which politicians control banks and how they benefit electorally from it