Corporate governance and procyclicality in a banking crisis: Empirical evidence and implications

Abstract

This paper presents our analysis of a complete financial data set on the population of Spanish deposit institutions for the last credit cycle. This information is combined with details about the characteristics of the corporate governance of the banks. Our results show that in a context of rapid credit growth (2002–2007), only financial institutions managed with political criteria have eventually experienced serious solvency problems (2008–2017) and have finally had to be bailed out with public resources. These results are particularly relevant for the establishment of appropriate prudential policies in countries where a government-owned banking system still exists.