The fall of Spanish cajas: Lessons of ownership and governance for banks |
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| Institution: | 1. Universitat de les Illes Balears, Spain;2. Banco de España, Spain;3. Universidad de Zaragoza, Spain;1. Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853, United States;2. Kamakura Corporation, United States;3. Shanghai Advanced Institute of Finance and China Academic of Financial Research, Shanghai Jiaotong University, Shanghai 200030, China;1. Economic Department, University of Pavia, Via S. Felice 5, 27100 Pavia, Italy;2. Management School, University of Liverpool, Chatham Street, Liverpool L69 7ZH, UK;1. Department of Economics and Finance and Centre for Empirical Finance, Brunel University, London, UK;2. CESifo and DIW Berlin, Germany;3. Italian National Institute of Statistics, Italy;1. University of Pennsylvania, United States;2. NBER, United States;3. CEPR, United Kingdom;1. Data Mining and Optimization Research Group, Centre for Artificial Intelligence, UKM Bangi, 43600 Selangor, Malaysia;2. Centre of Software Technology and Management, Faculty of Information Science and Technology, Universiti Kebangsaan Malaysia, UKM Bangi, 43600 Selangor, Malaysia |
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| Abstract: | Ownership, governance, and institutional diversity among banks are a subject of public and regulatory concern. This paper addresses this issue by using a case study of Spain, where the retail banking market was split evenly between shareholder and stakeholder banks before the crisis. We examine how institutional diversity mattered in the accumulation of risk in the pre-crisis years, in the severity of losses caused by the crisis, and in the resilience to recover from the losses. The method of analysis consists in linking the risk position of the banks in the pre-crisis period and the losses arising during the crisis to the decisions of banks to migrate from business models based on deposit financing to models based on market-debt financing. We find that cajas migrated to more vulnerable business models following the strategy of the shareholder banks, but the losses in the crisis were much higher in the former than in the latter. The paper interprets this result as evidence that what matters the most about the ownership of banks is their resilience in bad times. |
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| Keywords: | Ownership of banks Governance Banking crisis Spain Business models |
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