Banks play a crucial role in the allocation of resources in the economy. They channel household savings to the corporate sector and allocate investment funds among firms. This intermediation involves significant redistributive consequences. The political strength of banking relies on the liquid form banks hold their assets. It allows bankers to offer and move resources easily across all sectors of the economy. Thus, controlling a bank rather than a shoes factory empowers the entrepreneur with the capability to choose which regions, firms, social groups or even political parties to transfer resources to.

Governments do not ignore this fact; and, indeed, it is in their interest to intervene in the financial sector. Government's intervention aims to set a sound financial system, but also to make use of banks in order to attend their main political goal: to survive. Getting loans on preferential terms to fund the public budget, or influencing allocation to political supporters do serve ruler's propose to hold on to office.

Generally, this paper aims to analyze the structure of incentives that leads governments to make a politically use of banks from a comparative political-economy perspective. Under a democratic rule, it tests how electoral competition shapes government's incentive to control bank's lending activity.

The variation across regions in the level and timing of the presence of the public administration in Spanish saving banks (Cajas) serves as a useful source to tackle down the identification problem in the study of the politics of banking.