Government-Owned Banks, Risks, and Political Influence: International Evidence

Abstract

This paper examines the relation between government-owned banks and risk-taking during the period of 2002 to 2012. Using a new database that covers 89 countries, I find that government-owned banks in developing countries tend to have higher risk-taking than those in developed countries. My findings also show that risk-taking of government-owned banks in developing countries increases during an election period. Finally, the political influence of election periods on government-owned banks weakens in developing countries that adopt common law or have higher government stability, more stringent capital regulation, and greater financial transparency.