The revolving door between the government and banking sector in Portugal slightly decreased from 2005 to 2020, according to a study by the Lisbon Resilience Association. However, there are already indications of regression regarding the movement of public officials into banks.
“During the analyzed period, the country showed a positive but modest trajectory. However, there are already signs of reversal, and we might see the re-establishment of some ‘revolving doors’ that had improved following the crisis,” stated Luís Coruche, president of the Lisbon Resilience Association, about the study titled ‘Revolving Doors between Banks and the State’ now published.
The study, conducted under the Civic Rating Agency (a structure within the association), involved experts and academics from various fields analyzing 14 banks and a sample of one-third of all board members of each bank between 2005 (pre-sovereign debt crisis) and 2020 (post-debt crisis).
The analysis considers individuals moving from political roles, public positions, and regulators to positions in the financial system (the reverse transition from banks to the state was not analyzed).
The ‘revolving door’ phenomenon, where individuals move between significant roles in politics, the public sector, and private sector, is generally believed to exacerbate the risk of conflicts of interest and influence peddling.
The findings reveal a slight improvement in the ‘revolving doors’ in Portugal from 2005 to 2020, attributed to mechanisms established in the wake of the crisis: legislative transparency packages (regulations for political and senior public roles, anti-corruption mechanisms, etc.), European legislation and supervision (such as the assessment process for bank administrators by the European Central Bank), and a reduction in bank board members.
Before the crisis, Banco Espírito Santo (BES) was the bank with the most potentially problematic connections due to ‘revolving doors’, ending in 2014 amid a major financial scandal. Post-crisis, Caixa Geral de Depósitos presents the highest risk, although the study notes there are mitigating factors, as it is a public bank.
Despite the study noting a “modest but positive trajectory” regarding ‘revolving doors’ between banking and the state, it suggests there are “already signs of reversal” and advocates for the government and parliament to “establish guidelines and mechanisms” to regulate this movement, as prevention is overly dependent on the European Central Bank (ECB) and lacks national rules.
The study also estimated the macro-financial impact risk of these ‘revolving doors’, claiming “public coffers are exposed to approximately 1.6 billion euros per year”.
It adds that this “estimate is conservative, as the analysis conducted in this study does not yet include mapping potentially problematic connections moving from banking institutions to political, public, and regulatory positions, nor connections associated with internationally based banks that operate in the Portuguese financial system”.
Regarding the Lisbon Resilience Association, Luís Coruche, an expert in urban sustainability, explained it was founded 10 years ago by citizens independent of partisan and economic interests and currently has around 40 members. Its goal is civic monitoring in economic, social, and environmental areas, contributing to consolidating democracy.
Within this association, the Civic Rating Agency structure aims to regularly analyze the financial system and began its work with the study ‘Revolving Doors between Banks and the State’ (financed through fundraising) due to the belief that the financial system is crucial in democracy and should be safeguarded.
“It is vital that banks and the state do not succumb to an exclusive focus on immediate profit and surplus but instead concentrate on leaving a legacy of democratic consolidation. The quality of democracy has positive multiplier effects on financial stability, economic competitiveness, and social evolution,” the report states.
The study also includes various proposals related to the financial sector. It suggests, for example, studying the replacement of specific banking taxes (Banking Sector Contribution and Solidarity Addition) with a ‘Banking Service Quality Reactivity Tax’. This tax, it argues, would decrease or increase depending on the quality of service provided by the bank to the economy and society (requiring the definition of quality indicators).
