A New Approach to Identifying Political Connections: Evidence from the Russian Banking Sector

Abstract

This paper introduces a novel approach to identifying and operationalizing political connections of banks. We manually code 2,598 bankers who owned or worked in 115 Russian banks between 2015 and 2021 to classify political connections and uncover their institutional patterns through cluster analysis. We propose a set of variables that capture the origins, relevance, and maturity of political connections, which enable a more theoretically grounded assessment of their effects on business decisions and financial performance. Our findings confirm the prevalence and heterogeneity of political connections in the Russian banking sector and provide a nuanced understanding of how political interests infiltrate bank activities. We document the fact that formal ties to the government, regional authorities, and stateowned companies stand out, being associated with lower capital adequacy and higher lending to the economy. Distinct effects emerge for regulatory and
parliamentary connections. Regarding the timing of connections, those established after a banker joins the bank appear to mitigate state pressure, resulting in lower lending and reduced credit risk. Clustering identifies five groups of banks with distinct configurations of political connections, size, and ownership – from small regional banks with localized connections to large stateowned federal banks with comprehensive political networks, which also exhibit statistically significant differences in financial outcomes.