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Banking on politics, Volume 1
 
Author:Braun, Matias; Raddatz, Claudio; Collection Title:Policy Research working paper ; no. WPS 4902
Country:World; Date Stored:2009/04/15
Document Date:2009/04/01Document Type:Policy Research Working Paper
SubTopics:Public Sector Corruption & Anticorruption Measures; Access to Finance; Banks & Banking Reform; ; Corporate LawLanguage:English
Major Sector:FinanceRel. Proj ID:1W-Capital Flows And Financial Integration -- -- P053639;
Region:The World RegionReport Number:WPS4902
Sub Sectors:General finance sectorTF No/Name:TF040198-WORLD:; TF040145-WORLD:; TF090949-KCP HOW DO INSTITUTIONAL INVESTORS MANAGE WORLD SAVINGS?
Volume No:1  

Summary: This paper presents new data from 150 countries showing that former cabinet members, central bank governors, and financial regulators are many orders of magnitude more likely than other citizens to become board members of banks. Countries where the politician-banker phenomenon is more prevalent have higher corruption and more powerful yet less accountable governments, but not better functioning financial systems. Regulation becomes more pro-banker where this happens more often. Furthermore, a higher fraction of the rents that are created accrue to bankers, former politicians are not more likely to be directors when their side is in power, and banks are more profitable without being more leveraged. Rather than supporting a public interest view, the evidence is consistent with a capture-type private interest story where, in exchange for a non-executive position at a bank in the future, politicians provide for beneficial regulation.

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