Political Allocation of Finance

Banking system control, capital allocation, and economy performance☆

“…Not only does bank control let established business families deny potential entrants' capital, it also lets them shift losses to banks when contagion risks justify governments bailing out banks but not other firms (Perotti & Vorage 2008;Perotti & Volpin 2006). 2 La Porta et al (2003) link business family control of privatized Mexican banks to pervasive capital misallocation and risk shifting.…”

“…Politicians might acquiesce because of rent-seeking (Krueger 1974;Morck & Yeung 2004;Perotti & Vorage 2008); or even actively assist because of business family ties (Krueger 2002;Faccio 2006;Faccio et al 2006). This raises the possibility of "elite capture" of the banking system being an 7 important element of "crony capitalism" and all its attendant economic problems (Murphy et al 1991(Murphy et al , 1993Shleifer & Vishny 1993;Shleifer & Vishny 1998b;Haber 2002;Krueger 2002;Rajan & Zingales 2004;Daniels & Trebilcock 2008;Fisman & Miguel 2008 and others).…”