Is politics Bad for banking? how political ownership shaped the historical trajectory of Italian banks

The relationship between politics and banking is complex. On the one hand, political connections are often seen as detrimental to bank profitability and financial stability. On the other hand, historical evidence underscores the importance of political intervention in developing domestic financial systems and driving significant structural change. This paper contributes to the ongoing debate about political influence on economic and financial systems, particularly at a time when state involvement in credit allocation is regaining prominence to manage climate change transitions and navigate shifting geopolitical landscapes. Specifically, the paper provides a conceptual framework to examine the relationship between banks and politics by analyzing the impact of political connections on the institutional evolution of commercial banks over time. The paper focuses on three Italian banks-UniCredit, Intesa Sanpaolo, and Monte dei Paschi-tracking their evolution during two critical junctures that reshaped the European banking sector: the consolidation of the 1990s and the post-2008 market turmoil. The comparative analysis shows that political connections are not inherently harmful, but their effects are shaped by the concentration of political ownership in the banks’ corporate structures.