Banking on Politics: When Former High-ranking Politicians Become Bank Directors

New data are presented for a large number of countries on how frequently former high-ranking politicians become bank directors. Politician-banker connections at this level are relatively rare, but their frequency is robustly correlated with many important characteristics of banks and institutions. At the micro level, banks that are politically connected are larger and more profitable than other banks, despite being less leveraged and having less risk. At the country level, this connectedness is strongly negatively related to economic development. Controlling for this, the analysis finds that the phenomenon is more prevalent where institutions are weaker and governments more powerful but less accountable. Bank regulation tends to be more pro-banker and the banking system less developed where connectedness is higher. A benign, public-interest view is hard to reconcile with these patterns. Copyright The Author 2010. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / <sc>the world bank</sc>. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.