How Politics in uence State-owned Banks - the Case of German Savings Banks

This paper is one of the rst to analyse political in uence on state-owned savings banks in a developed country with an established nancial market: Germany. Combining a large dataset with nancial and operating gures 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 nd strong indications for political in uence: the probability that savings banks close branches, lay-o employees or engage in merger activities is signi cantly 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 nd that savings banks extend signi cantly 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 in uence depends on bank speci c, economical and political circumstances in the city or county: political in uence seems to be facilitated by weak political majorities and pro table banks. Banks in weak areas seem to be less prone to political in uence.