Liberalization and risk taking:
the case of Spanish Savings Banks
Manuel Illueca
Universitat Jaume I and IVIE
Lars Norden
Erasmus University
Gregory F. Udell
Indiana University
Valencia, November 27th, 2012
• We study Spain, and specifically, the caja banks
- Spain's economic condition precarious
- The Euro’s future … crucially depends on what happens in Spain
The Economist, Nov. 25, 2010
• Unlike Ireland, Portugal and Greece, but like Italy, Spain is large
• Cajas are nearly 50% of the Spanish banking system
– The cajas are a disaster
– The majority of the European stress test failures were cajas
– Oliver Wyman‘s report: 5 out of 7 failures are cajas
• What happened? Our paper
• Our paper is about the intersection of two important
dimensions of banking
- Bank governance
Political influence
- Banking deregulation/liberalization
• We look at a common, but extreme, form of governance –
the “non-traditional” bank: non-profit banks
• We ask this question:
- What happens when you mix deregulation, nontraditional banking, and political influence?
• Our paper is about the intersection of two important
dimensions of banking
- Bank governance
Political influence
- Banking deregulation/liberalization
• We look at a common, but extreme, form of governance –
the “non-traditional” bank: non-profit banks
• What happens when you mix deregulation, nontraditional banking, and political influence?
TROUBLE!
• The common denominator
– Non-traditional governance
– Not stockholder owned
• Ubiquitous
–
–
–
–
Germany - savings banks
Italy – cooperative banks
Japan – cooperative banks
U.S. – Mutual S&Ls, Mutual Savings Banks, and Credit
Unions
– Spain - The Cajas
• Like Spain, many countries deregulated these
institutions ...
– Germany (State guarantees), Italy (geographic barriers), France,
Japan
• ... Including the U.S.
– Branching and product deregulation of the S&L industry
– Spatial and product deregulation of credit unions
• The cajas are a very interesting natural
experiment
– Significant deregulation: the final removal of branching
restrictions in 1988 followed by aggressive expansion
– Also associated with a change in governance that affected
political influence
• After deregulation, cajas expanded rapidly
• Expansion was associated with a significant increase in risk
in lending portfolios
• Weak governance played a role
- Geographic expansion driven by political influence
- Increased political influence resulted in:
- higher ex ante risk
- higher ex post risk (i.e., default)
• History
- Existed for 100 years
- Established by local governments, churches and/or welfare
societies
- Private foundations with no owners
- either retain profits, or
- pay “social dividends”
- Purpose:
- promote savings by middle- and working-class people
- provide lending to small businesses from the same city or
province
– In 1975 spatial scope
extended to provincial level
– After 1975, extended to
regional level
– Then in 1988 extended
nationwide
• At least one of two criteria in 1992
• i) more than 50% of its own
branches in the province or,
• ii) savings bank i has more than
5% of the total number of
branches located in that
province
• Cajas initially municipal-level institutions
• In 1985 national legislation gave control to:
-
Depositors (44%)
Local governments (40%)
Founders (11%)
Employees (5%)
Depositors
Local governments
Founders
Employees
Diffuse
Consolidation of control: for
50% of SBs, one regional
government had a stake on
average of 20%
Depositors
Regional governments
Local governments
Founders
Employees
• Branching deregulation and economic activity
- Mostly positive (e.g., Jayaratne & Strahan, 1996; Clarke,
2004; Acharya et al., 2007)
- One study mixed (Huang 2008)
• Branching deregulation and bank behavior
- Banks entering new markets face higher ex – post risks
than incumbent banks (Bofondi & Gobbi, 2006; DeYoung
et al,2008).
- In Spain, deregulation leads to an increase in competition
and higher risk (Salas &Saurina, 2003), Carbó et al, 2003)
• State ownership, bank behavior, and economic activity
- State owned banks underperform private banks, negative
real effects (e.g., La Porta et al., 2002, Clarke and Cull 2002,
Barth et al. 2004, Beck et al. 2004, Berger et al. 2005,
Ianotta et al. 2007 Hau and Thum 2009, Puri et al. 2011)
- Behavior affected by political influence (e.g., Sapienza, 2004)
• Savings banks in Spain
- Weaker governance than commercial banks (Crespí,
García-Cestona, and Salas, 2004)
- More risk-taking behavior (Salas & Saurina, 2002; Jiménez
& Saurina, 2004)
• Banks: Financial statements, branch data (1992-2010)
- All Spanish Commercial banks (AEB)
- All Spanish Savings banks (CECA), definition of home
markets (Fuentelsaz & Gómez, 1998)
• Firms: Financial statements (1997-2007)
- 40,401 audited firms (205,891 firm-year obs., SABI)
- Number and identity of bank relationships, location of firms’
headquarters ( matching of firms and banks)
• Additional factors
- Population and GDP at the province level (INE), physical
distance between provinces
- Results of local and regional elections (Ministry of Interior)
• Analyze firms that start borrowing from SBs from
other provinces
- Focuses on expansion behavior
• Univariate analysis
- Ex ante risk greater
- ZSORE riskier than those that “never” borrow from SB
- EQ/TA ratio lower for “never group”
- Risk highest when regional gov’t has stake in SB and
host and home are the same political party
Risk: higher for firms borrowing
from SB out of home region
Firms borrowing from
SBs from
other
regions
SBs from home regions + Commercial Banks
Total: SBs_home + CBs
L_TA
L_EQTA
L_CURR
L_ROA
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_GROWTH
L_LISTED
Obs
Median
9,855
29.94
114.48
2.71
2.56
17
0.22
3.05
7.44
0.60
4,639
Median
8,949
34.14
123.74
2.98
2.82
19
0.25
2.16
6.20
0.81
13,534
P-value
0.0000
0.0000
0.0000
0.0001
0.0000
0.0000
0.0000
0.0000
0.0000
0.1567
SBs from home regions
***
***
***
***
***
***
***
***
***
Median
8,050
33.87
122.81
2.97
2.88
18
0.20
2.09
6.00
0.58
2,752
P-value
0.0000
0.0000
0.0000
0.0087
0.0000
0.0001
0.0850
0.0000
0.0001
0.9046
***
***
***
***
***
***
*
***
***
Commercial Banks
Spanish Commercial Banks
Foreign Commercial Banks
Median
P-value
Median
P-value
8,862
0.0000
***
12,823
0.0000
***
34.34
0.0000
***
35.00
0.0000
***
123.78
0.0000
***
129.10
0.0000
***
2.96
0.0002
***
3.25
0.0844
*
2.82
0.0000
***
2.82
0.0000
***
19
0.0000
***
19
0.0015
***
0.24
0.0143
**
0.42
0.0000
***
2.14
0.0000
***
2.49
0.0000
***
6.32
0.0000
***
5.62
0.0031
***
0.79
0.2185
1.50
0.0003
***
9,741
599
Risk: higher for firms borrowing
from SB out of home region and
higher yet if SB politically
influenced
L_TA
L_EQTA
L_CURR
L_ROA
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_GROWTH
L_LISTED
Obs
Firms borrowing from savings banks from other regions
Regional Government
Ruling party in the borrower’s region and the
savings bank’s home region
Without
With voting
Rank-sum Test
Different
Same
Rank-sum Test
voting rights
rights
With vs Without
Different vs Same
Median
Median
P-value
Median
Median
P-value
9,116
10,096
0.0041
***
9,855
10,760
0.2694
34.29
28.64
0.0000
***
29.89
26.69
0.0002
***
122.17
112.17
0.0000
***
113.97
111.23
0.0879
*
2.92
2.64
0.0098
***
2.80
2.49
0.2386
2.67
2.55
0.0002
***
2.57
2.51
0.2957
17
17
0.4982
18
17
0.1179
0.21
0.22
0.4475
0.21
0.23
0.2237
2.46
3.11
0.0000
***
3.12
3.14
0.8670
6.21
7.53
0.0084
***
7.73
7.36
0.9948
0.47
0.73
0.3846
0.82
0.64
0.6245
1,070
2,059
1,091
940
Reference group
Alternative group
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_Ln(TA)
L_GROWTH
L_LISTED
INTERCEPT
Alternative group
MODEL 1 (Logit)
NEW=0
NEW=1
Coeff.
p-val.
-0.1052
0.000
-0.0107
0.000
-0.2930
0.000
0.3955
0.000
0.0528
0.020
0.1788
0.015
-0.2549
0.322
-2.2627
0.000
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_Ln(TA)
L_GROWTH
L_LISTED
INTERCEPT
Alternative group
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_Ln(TA)
L_GROWTH
L_LISTED
INTERCEPT
Year fixed effects
Industry fixed effects
Obs.
Adj. McFadden R2
YES
YES
13,010
0.1031
***
***
***
***
**
**
***
MODEL 2 (Multi-logit)
NEW=0
NEW_REG=0
Coeff.
p-val.
-0.0264
0.405
-0.0073
0.010 **
-0.1872
0.072 *
0.1889
0.000 ***
-0.0268
0.514
-0.0866
0.554
-0.0104
0.983
-2.8084
0.000 ***
NEW_REG=1
Coeff.
p-val.
-0.1495
0.000 ***
-0.0130
0.000 ***
-0.3722
0.000 ***
0.4014
0.000 ***
0.1001
0.001 ***
0.1735
0.083 **
-0.3287
0.342
-3.4548
0.000 ***
YES
YES
11,879
0.0820
MODEL 3 (Multi-Logit)
NEW=0
NEW_REG_P=-1
Coeff.
p-val.
-0.0262
0.409
-0.0073
0.010 **
-0.1869
0.072 *
0.1890
0.000 ***
-0.0267
0.515
-0.0865
0.554
-0.0109
0.982
-2.8111
0.000 ***
NEW_REG_P=0
Coeff.
p-val.
-0.1179
0.001 ***
-0.0144
0.000 ***
-0.4284
0.000 ***
0.4080
0.000 ***
0.1071
0.008 ***
0.1278
0.332
-0.0419
0.921
-4.5837
0.000 ***
NEW_REG_P=1
Coeff.
p-val.
-0.1826
0.000 ***
-0.0111
0.000 ***
-0.3114
0.001 ***
0.4072
0.000 ***
0.0995
0.020 **
0.2339
0.081 *
-0.7173
0.182
-4.0263
0.000 ***
YES
YES
11,861
0.0769
Risk higher if another province
w/o home regional control
Risk higher yet if home
regional control
Risk highest if regional control
and parties the same
• Loans by expanding SBs underpriced
– No changes in interest coverage
– Lower spreads
• CEO and Chairmen turnover higher for SBs with regional
stakeholders
• Chairman more like to change if political party changes in
regional government
• CEO turnover declines when SB rapidly expanding into
new markets
Results on risk taking and executive turnover consistent
with management being rewarded for aggressive
expansion
Higher CEO and Chairman turnover
under regional control
Dep. Variable
Pred.
sign
INTERCEPT
REGION_DUM
POL_CHANGE
INC_EXPANSION
ROA
LN_TA
Year fixed effects
Obs.
Adj. McFadden R2
(+)
(+)
(-)
(-)
Model 1
(Full sample)
Coeff.
-1.423
0.863
1.498
-5.170
-0.453
-0.040
Yes
686
0.066
p-val.
0.501
0.012
0.000
0.441
0.279
0.763
Change in political party
Lower CEO turnover if aggressive
expansion
CHAIR_TURNOVER
Model 2
Model 3
(REGION_DUM=1) (REGION_DUM=0)
Coeff.
2.028
p-val.
0.496
Coeff.
-3.246
p-val.
0.186
2.161
-2.982
-0.870
-0.154
Yes
270
0.082
0.024
0.753
0.335
0.426
0.997
-15.16
-0.146
0.111
Yes
379
0.055
0.020
0.213
0.730
0.156
Model 4
(Full sample)
Coeff.
-0.429
0.588
-1.081
-10.86
-1.497
-0.050
Yes
677
0.073
p-val.
0.845
0.037
0.130
0.099
0.002
0.685
CEO_TURNOVER
Model 5
(REGION_DUM=1)
Model 6
(REGION_DUM=0)
Coeff.
1.098
p-val.
0.630
Coeff.
-2.067
p-val.
0.508
-0.400
-19.08
-2.451
-0.102
Yes
246
0.077
0.581
0.050
0.009
0.455
-0.892
-6.987
-0.945
0.006
Yes
348
0.043
0.384
0.547
0.111
0.973
• Robust to different samples
– 1st vs. 2nd half of sample period
– Madrid & Barcelona vs. rest of Spain
– Only firms with 8 years of data
• Some evidence that SB’s governance problem driven by
dispersion in voting rights (Crespi et al. 2004)
- Robust to controlling for overall dispersion
• Robust to firms borrowing from foreign banks
- Foreign banks also strategically expanded
- Firms borrowing from foreign banks riskier
- But, still not as risky as firms borrowing from nonhome market SBs
• Risk results might be related to borrower specific characteristics
- Likelihood of switching to a new bank
- We run a conditional logit model (fixed effects)
MODEL 1 (Logit)
L_ZSCORE
L_Ln(TA)
L_GROWTH
L_BIGAUDIT
BANK_SIZE
BANK_EQTA
BANK_DEPTA
BANK_LOANTA
BANK_ROE
Year fixed effects
Firm-Bank fixed effects
Obs.
Adj. McFadden R2
Ref. : SWITCH_ALL=0
Alt.: SWITCH_ALL=1
Coeff.
p-val.
-0.0520
0.000 ***
0.0072
0.723
0.1108
0.000 ***
-0.2920
0.000 ***
-0.0002
0.000 ***
-0.8435
0.238
0.0148
0.923
0.7310
0.000 ***
1.5481
0.000 ***
YES
YES
169,410
0.1462
MODEL 2 (Logit)
Ref.: SWITCH_NEW=0
Alt.: SWITCH_NEW=1
Coeff.
p-val.
-0.0826
0.001 ***
-0.0228
0.493
0.1470
0.000 ***
-0.3402
0.001 ***
-0.0006
0.000 ***
-3.2122
0.134
0.1231
0.686
1.0755
0.006 ***
1.3113
0.003 ***
YES
YES
51,568
0.0745
MODEL 3 (Logit)
MODEL 4 (Logit)
Ref.: SWITCH_NEW_REG=0
Alt.: SWITCH_NEW_REG=1
Coeff.
p-val.
-0.0972
0.005 ***
-0.0762
0.168
0.0703
0.202
0.0364
0.817
-0.0002
0.011 **
-8.9820
0.069 *
0.4509
0.316
1.8648
0.003 ***
1.9760
0.003 ***
YES
YES
26,316
0.0781
Ref.: SWITCH_NEW_REG_P=0
Alt.: SWITCH_NEW_REG_P=1
Coeff.
p-val.
-0.1410
0.006 ***
-0.1976
0.007 ***
0.1064
0.140
0.1114
0.603
-0.0009
0.478
-7.8913
0.036 ***
-0.2889
0.614
2.4366
0.002 ***
2.9319
0.001 ***
YES
YES
13,131
0.0836
2nd stage:
Outcome equation
Our main results hold
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_Ln(TA)
L_GROWTH
L_LISTED
INTERCEPT
Year fixed effects
Industry fixed effects
1st stage:
Selection equation
Where to expand?
BANK_SIZE
BANK_EQTA
BANK_DEPTA
BANK_LOANTA
BANK_ROE
LN(PROV_GDP)
LN(PROV_POP)
PROV_NEIGHBOR
INTERCEPT
Total number of obs.
Censored obs.
Uncensored obs.
Joint significance test
Wald Chi2
Independence test
Wald Chi2
MODEL 1 (probit)
MODEL 2 (probit)
MODEL 3 (probit)
Ref. group: NEW=0
Alt. group: NEW=1
Coeff. P-value
-0.0612
0.000 ***
-0.0061
0.000 ***
-0.1295
0.000 ***
0.2383
0.000 ***
0.0335
0.014 **
0.1073
0.014 **
-0.1462
0.329
-1.3768
0.000 ***
YES
YES
Ref. group: SAMPLE=0
Alt. group: SAMPLE=1
Coeff.
P-value
0.0016 0.000
***
-3.2327 0.000
***
-1.3173 0.000
***
0.3968 0.000
***
5.0811 0.000
***
1.5238 0.000
***
0.8503 0.000
***
Ref.: NEW_REG=0
Alt.: NEW_REG=1
Coeff. P-value
-0.0804
0.001 ***
-0.0028
0.163
-0.1028
0.184
0.1156
0.000 ***
0.0873
0.004 ***
0.1823
0.074 *
-0.1666
0.625
-0.7098
0.099 *
YES
YES
Ref. group: SAMPLE=0
Alt. group: SAMPLE=1
Coeff.
P-value
0.0012
0.000 ***
-3.4847
0.002 ***
-3.3661
0.000 ***
-0.3826
0.202
2.7835
0.005 ***
1.2418
0.000 ***
0.8615
0.000 ***
1.6041
0.000 ***
-23.35
0.000 ***
20,701
18,400
2,301
Ref.: NEW_REG_P=0
Alt.: NEW_REG_P=1
Coeff. P-value
-0.0398
0.206
0.0024
0.338
0.0470
0.614
0.0009
0.962
-0.0004
0.992
0.1147
0.300
-0.4083
0.321
0.3031
0.542
YES
YES
Ref. group: SAMPLE=0
Alt. group: SAMPLE=1
Coeff.
P-value
0.0013
0.000 ***
-12.691
0.000 ***
-3.833
0.000 ***
0.5581
0.094 *
0.2643
0.814
1.2238
0.000 ***
0.8755
0.000 ***
1.4667
0.000 ***
-22.97
0.000 ***
19,914
18,400
1,514
-27.23
46,507
33,804
12,703
0.000
***
3,673.8
0.000
***
4,294.5
0.000
***
3,325.1
0.000
5.46
0.000
***
72.20
0.000
***
1.46
0.227
***
• SBs forced to hold non-diversified portfolios prior to expansion
– SBs “adapt” their lending to the new market rather than move
to a diversified portfolio (e.g., BBVAs national portfolio) or
mimic their home portfolio
Dep. Var.:
DIFF_LOANS
INTERCEPT
ADAPT
DIVERS
SPEC
Obs.
Adj. R2
Pred.
signs
(+)
(+)
(+)
Model 1
Coeff.
-0.0028
0.1708
p-val.
0.000
0.000
Model 2
Coeff.
-0.0010
0.0575
30,840
0.0142
30,840
0.0013
p-val.
0.235
Model 3
Coeff.
0.0008
p-val.
0.000
0.066
-0.0485
30,840
0.0015
0.212
Model 4
Coeff.
-0.0016
0.2030
-0.0130
-0.0911
30,840
0.0193
p-val.
0.024
0.000
0.650
0.028
Less than 10 years
after market entry:
lower Z-score in
new markets for
all SBs irrespective
of governance
Reference group
Alternative group
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_Ln(TA)
L_GROWTH
L_LISTED
INTERCEPT
Alternative group
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_Ln(TA)
L_GROWTH
L_LISTED
INTERCEPT
Alternative group
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_Ln(TA)
L_GROWTH
L_LISTED
INTERCEPT
Year fixed effects
Industry fixed effects
Obs.
Adj. McFadden R2
Category 1
Less than 10 years since market
entry
NEW=0
NEW_REG=0
Coeff.
p-val.
-0.3823
0.027 **
-0.0263
0.093 *
-0.7455
0.170
0.3485
0.003 ***
0.1070
0.631
-0.7322
0.330
2.5943
0.198
0.1838
0.937
NEW_REG=1
Coeff.
p-val.
-0.2216
0.030 **
-0.0209
0.016 **
-1.2732
0.000 ***
0.3637
0.000 ***
0.3578
0.012 **
0.1864
0.654
-1.3726
0.411
-3.4351
0.051 *
NEW_REG_P=1
Coeff.
p-val.
-0.3407
0.006 ***
-0.0196
0.047 **
-1.0333
0.006 ***
0.3893
0.000 ***
0.3952
0.014 **
-0.4621
0.367
-17.13
0.997
-2.8150
0.108
YES
YES
575
0.1740
Category 2
More or equal than 10
years since market entry
NEW=0
NEW_REG_P=-1
Coeff.
p-val.
-0.0109
0.737
-0.0058
0.048 **
-0.1881
0.080 *
0.1794
0.000 ***
-0.0239
0.571
-0.0645
0.668
-0.2124
0.690
-3.1272
0.000 ***
NEW_REG_P=0
Coeff.
p-val.
-0.0981
0.013 **
-0.0129
0.000 ***
-0.3695
0.002 ***
0.4006
0.000 ***
0.0973
0.030 **
0.1425
0.326
-0.0551
0.903
-4.5837
0.000 ***
NEW_REG_P=1
Coeff.
p-val.
-0.1703
0.000 ***
-0.0094
0.005 ***
-0.3135
0.011 **
0.4015
0.000 ***
0.0919
0.045 **
0.2893
0.041 **
-0.5699
0.291
-4.4475
0.000 ***
YES
YES
11,286
0.0732
More than 10 years
after market entry:
lower Z-score in
new markets only
observed in SBs
under regional
control
2nd stage:
Outcome equation
Our main results hold
PROV_HHI
L_ZSCORE
L_AGE
L_BIGAUDIT
L_NREL
L_Ln(TA)
L_GROWTH
L_LISTED
INTERCEPT
Year fixed effects
Industry fixed effects
1st stage:
Selection equation
BANK_SIZE
BANK_EQTA
BANK_DEPTA
BANK_LOANTA
BANK_ROE
PROV_HHI
LN(PROV_GDP)
LN(PROV_POP)
PROV_NEIGHBOR
INTERCEPT
Total number of obs.
Censored obs.
Uncensored obs.
Joint significance test
Wald Chi2
Independence test
Wald Chi2
MODEL 1 (probit)
MODEL 2 (probit)
MODEL 3 (probit)
Ref. group: NEW=0
Alt. group: NEW=1
Coeff. P-value
-0.1086
0.000 ***
-0.0626
0.000 ***
-0.0060
0.000 ***
-0.1287
0.000 ***
0.2384
0.000 ***
0.0342
0.012 **
0.1059
0.016 **
-0.1497
0.315
-1.2939
0.000 ***
YES
YES
Ref. group: SAMPLE=0
Alt. group: SAMPLE=1
Coeff.
P-value
0.0016
0.000 ***
-3.2257
0.000 ***
-1.3105
0.000 ***
0.3992
0.000 ***
5.0612
0.000 ***
-0.1569
0.000
1.4916
0.000 ***
0.8910
0.000 ***
Ref.: NEW_REG=0
Alt.: NEW_REG=1
Coeff. P-value
0.2868
0.000 ***
-0.0767
0.002 ***
-0.0031
0.122
-0.1065
0.169
0.1159
0.000 ***
0.0854
0.005 ***
0.1809
0.079 *
-0.1273
0.702
-23.41
0.000 ***
YES
YES
Ref. group: SAMPLE=0
Alt. group: SAMPLE=1
Coeff.
P-value
0.0012
0.000 ***
-3.5164
0.002 ***
-3.3612
0.000 ***
-0.3807
0.201
2.9101
0.004 ***
-0.0515
0.208
1.2294
0.000 ***
0.8757
0.000 ***
1.6017
0.000 ***
-23.35
0.000 ***
20,701
18,400
2,301
Ref.: NEW_REG_P=0
Alt.: NEW_REG_P=1
Coeff. P-value
0.5271
0.000 ***
-0.0266
0.401
0.0014
0.574
0.0482
0.608
-0.0010
0.959
0.0072
0.842
0.1054
0.341
-0.4498
0.270
-0.1987
0.691
YES
YES
Ref. group: SAMPLE=0
Alt. group: SAMPLE=1
Coeff.
P-value
0.0013
0.000 ***
-12.780
0.000 ***
-3.8372
0.000 ***
0.5815
0.081 *
0.3575
0.749
-0.0195
0.653
1.2286
0.000 ***
0.8766
0.000 ***
1.4458
0.000 ***
-23.03
0.000 ***
19,914
18,400
1,514
4,139.9
0.000
***
3,294.2
0.000
85.18
0.000
***
1.98
0.159
-27.39
46,507
33,804
12,703
0.000
3,524.1
0.000
1.67
0.197
***
***
***
• Did ex ante risk-taking result in ex post poorer
performance? YES
• Five of the eight cajas failed the 2011 stress tests
- The biggest Spanish banks did not
- A number of cajas were rescued during 2008-09
- Oliver Wyman‘s report: 5 out of 7 failures are cajas
• Bankruptcy analysis
- Logit model for bankruptcy
- Key findings
- ZSCORE predicts bankruptcy
- Also, borrowing from out-of-province SB
- Driven by political connectiveness (same party)
- Effects more powerful for firms in construction and real
estate development
Baseline model
Risk higher if
borrowing from
an outside caja
Risk higher yet if
home regional
control
Risk highest if
parties the same
Ref. group.: DEF=0
Alt. group.: DEF=1
AVG_ZSCORE
AVG_AGE
AVG_BIGAUDIT
AVG_LISTED
AVG_NREL
AVG_LNTA
AVG_GROWTH
NEW
NEW_NOREG
NEW_REG
NEW_REG_NOP
NEW_REG_P
INTERCEPT
Industry fixed effects
Year fixed effects
Obs.
Adj. McFadden R2
Model 1
Coeff.
p-val.
-0.8384 0.000
-0.0069 0.000
-1.1794 0.000
-0.0145 0.967
0.0834 0.000
-0.1562 0.000
0.0445 0.563
0.2424 0.000
***
***
***
***
***
Model 2
Coeff.
p-val.
-0.8379 0.000
-0.0068 0.000
-1.1784 0.000
-0.0162 0.963
0.0813 0.000
-0.1570 0.000
0.0447 0.562
0.750
***
***
***
***
***
***
***
***
0.1397
0.2813
-0.1081
YES
YES
67,116
0.1159
***
***
***
Model 3
Coeff.
p-val.
-0.8377 0.000
-0.0068 0.000
-1.1776 0.000
-0.0162 0.963
0.0812 0.000
-0.1571 0.000
0.0443 0.565
-0.0998
YES
YES
67,116
0.1159
0.128
0.000
0.769
0.1399
0.127
0.2268
0.3371
-0.1001
YES
YES
67,116
0.1160
0.003
0.000
0.768
***
***
***
Construction + Real Estate
Risk higher if
borrowing from
an outside caja
Risk higher yet if
home regional
control
Risk highest if
parties the same
Dep. Var.: DEF
AVG_ZSCORE
AVG_AGE
AVG_BIGAUDIT
AVG_LISTED
AVG_NREL
AVG_LNTA
AVG_GROWTH
NEW
NEW_NOREG
NEW_REG
NEW_REG_NOP
NEW_REG_P
INTERCEPT
Industry fixed effects
Year fixed effects
Obs.
Adj. McFadden R2
Model 1
Coeff.
p-val.
-0.6714 0.000
-0.0408 0.000
-1.5926 0.000
-0.0615 0.935
0.0547 0.042
0.0310 0.486
0.2002 0.028
0.2940 0.001
***
***
***
**
Model 2
Coeff.
p-val.
-0.6679 0.000
-0.0407 0.000
-1.5903 0.000
-0.0774 0.918
0.0482 0.077
0.0287 0.520
0.2024 0.026
0.750
*
**
***
***
***
*
**
***
0.0989
0.3549
-0.1081
YES
YES
9,090
0.0866
***
***
***
Model 3
Coeff.
p-val.
-0.6678 0.000
-0.0407 0.000
-1.5878 0.000
-0.0821 0.913
0.0480 0.078
0.0292 0.513
0.2020 0.027
-1.3982
YES
YES
9,090
0.0870
0.562
0.000
0.008
0.0989
0.561
0.3052
0.3991
-1.4029
YES
YES
9,090
0.0871
0.021
0.001
0.008
***
***
**
***
***
• What happens when you mix deregulation, non-traditional
banking, and political influence? TROUBLE
• Spanish savings banks expanded aggressively
• Lent to observably riskier borrowers
• Higher ex ante risk
• Higher ex post risk
• At lower interest rates
• Aggressiveness fueled by poor governance that allowed
political influence
Thank you for your attention