The Reverse Revolving Door in the Supervision of European Banks

Abstract

We show that the presence of executive directors with prior experience in the finance industry is pervasive on the boards of European national banking supervisors. Up to one executive out of three has previously held positions in the industry she supervises (or in closely connected ones). Appointments of such executives impact more favorably bank valuations than those of executives without a finance background. The proximity to supervised banks---rather than superior financial expertise or intrinsic skills---appears to drive the positive differential effect of finance-related executives. Finally, the presence of former finance professionals in the board of banking authorities associates with lower regulatory capital and faster growth of banks, pointing to a more lenient supervisory style.

Keywords: Revolving Doors, Banking Supervision, Conflicts of Interest

JEL Classification: G14, G21, G28