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Politicization, banking experience and risk in savings banks

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Abstract

During the global financial crisis, criticism of the politicization and lack of professionalization of the savings banks has taken a central position in the political debate. The aim of this article is to analyze if the political presence of governing bodies in Spanish savings banks has been reflected in their various risk-taking behaviors before and during the financial crisis. We will also analyze whether the influence of the chairman’s banking experience matters. The results do not provide evidence that the composition of the boards of savings bank, or even their politicization, have played a role. However we show that savings banks run by a chairman with previous banking experience are likely to be significantly more solvent and less volatile.

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Notes

  1. Government owned banks, mutual banks and credit cooperatives can be considered as other examples of the “non-private sector” in the banking industry (Illueca et al. 2012).

  2. In any case, there are some mergers between savings banks and mergers between commercial banks during the period. Since merged institutions cannot be considered as having disappeared, we decided to retain them within the sample as individual entities.

  3. This could be indicating that these board members are also aligned with political power.

  4. According to Illueca et al. (2012) an analysis of loan loss provisions might not be instructive in Spain due to banks having to comply with a dynamic loan loss provisioning rule since 2000, which lead to loan loss provisions not necessarily reflecting the real loan values. Second, the governance structure of savings banks and political influence during the period of expansion might have created incentives to delay the reporting of loan loss provisions and write-offs to hide potentially negative effects from the rapid expansion.

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Acknowledgments

We acknowledge financial support from the Research Agency of the Spanish Government (Project ECO2011-29144-C03-02).

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Authors and Affiliations

  1. Technical University of Cartagena, Cartagena, Spain

    Emma García-Meca

  2. University of Murcia, Murcia, Spain

    Juan Pedro Sánchez-Ballesta

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  1. Emma García-Meca
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Correspondence to Emma García-Meca.

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García-Meca, E., Sánchez-Ballesta, J.P. Politicization, banking experience and risk in savings banks. Eur J Law Econ 38, 535–553 (2014). https://doi.org/10.1007/s10657-012-9377-5

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