SWFs in banks during the crisis

Abstract

SWFs are characterized by their large size and limited level of transparency, which might worsen the potentially politicized nature of their investments. During the latest financial crisis, SWFs have started getting interested in financial companies and have become key players, also entering the capital of large US and European banks. The literature and the industry have analyzed the potential pros and cons of the participation of SWFs into the financial industry, but no conclusive answer has been provided, especially with reference to the effects of the presence of SWFs on the performance of their targets. This paper aims at evaluating this latter aspect, by measuring the performance of SWF banks, through the use of four performance ratios. When comparing the performance of SWF banks with a sample of non-SWF banks in three time periods (2004-2006, 2007-2008 and 2009-2014) we find no statistical differences in performances, but during the acute crisis period, when SWF activity in the banking industry was at its top. During this phase, SWF banks performed worse than their peer. Nevertheless, regression results confirm that the presence of a SWF cannot be per se considered the determinant of this performance.