How Politics Influence State-owned Banks - the Case of German Savings Banks

Oliver Vins

No 191, Working Paper Series: Finance and Accounting from Department of Finance, Goethe University Frankfurt am Main

Abstract: This paper is one of the first to analyse political influence on state-owned savings banks in a developed country with an established financial market: Germany. Combining a large dataset with financial and operating figures of all 457 German savings banks from 1994 to 2006 and information on over 1,250 local elections during this period we investigate the change in business behavior around elections. We find strong indications for political influence: the probability that savings banks close branches, lay-off employees or engage in merger activities is significantly reduced around elections. At the same time they tend to increase their extraordinary spendings, which include support for social and cultural events in the area, on average by over 15%. Finally, we find that savings banks extend significantly more loans to their corporate and private customers in the run-up to an election. In further analyses, we show that the magnitude of political influence depends on bank specific, economical and political circumstances in the city or county: political influence seems to be facilitated by weak political majorities and profitable banks. Banks in economically weak areas seem to be less prone to political influence.

JEL-codes: D72 D78 G21 G28 H70 (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-ban, nep-cdm, nep-eec and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:fra:franaf:191

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