Italian Banking and the Revolving Door


Andrea Gorga

Abstract: This paper explains the concept of the revolving door and how it affects society. It discusses a few examples in Italy where the movement of public employees into private banks may have contributed to recent bankruptcies and scandals. In the third section, the paper describes Italian regulation and its inadequacies on the issue. The final section prescribes some policies that can begin a virtuous process towards the safe institutionalization of the phenomenon.



In 2016 the former president of the European Commission Juan Manuel Barroso became the new non-executive chairman of Goldman Sachs. This event raised concerns and started a heated debate in the European Parliament on the phenomenon of revolving doors. It finally led to the publication of a report by an independent panel that acquitted Barroso and Goldman Sachs from any wrongdoing. This case focused the attention of the public, but the movement of employees from positions in public offices to the private sector is common, especially among top management. It has also attracted the attention of researchers. Over the past 14 years the number of top executives from regulatory agencies who end up in private firms has increased by more than 24% (Shive and Forster 2016). The movement tends to have significant positive effects on the firm’s risk management (stock return volatility declines, capital ratios improve, loan loss provisions decline). The channel through which the phenomenon of revolving doors affects a firm’s performance is still debated and, assessing it with different perspectives leads to different ethical conclusions. Two main hypotheses (with corresponding ethical perspectives) prevail on how revolving doors affect the firm’s performances.

How does the revolving door affect an economy?

There are two main hypotheses: the so-called “schooling hypothesis” and the “quid-pro-quo hypothesis”. The former assumes revolved regulators are often more skilled and clearly more familiar with regulation, therefore they add further productivity to the firm. Kempf (2017) also finds that former regulators’ performances improve with news about employment opportunities. She claims the regulators have more incentives than employees from private firms to work hard and improve their skills to signal their abilities to potential employers. Shive and Forster (2017) find evidence of positive effects on a firm’s efficiency by hiring revolving regulators. They claim the same effect is absent for unregulated firms. This point further supports the “schooling hypothesis”.

The “quid-pro-quo hypothesis” is more ethically questionable. Under this hypothesis the increase in productivity comes from practices at the border between legality and illegality. The improvement would not be in efficiency and productivity, but rather the firm gains in political connections and preferential treatment in public procurement, access to finance and firms can even benefit from further tax exemptions (Schofield and Caballero 2017). To further support this hypothesis, Faccio et al. (2006) show how the differential in profits between firms hiring former regulators and firms with limited political connections are positively correlated with the environment of corruption. This would mean that, in more countries where corruption is more prevalent, hiring former public officials have a greater value. This can only imply a link between corrupt practices and revolving doors, supporting therefore the quid-pro-quo hypothesis. The regulators, considering the opportunities for future employment, can find themselves in situations where there are conflicts of interest, possibly harming social public good. They can, for example, strengthen and complicate regulation aimed at increasing their value to private firms once in the job market (Lucca et al. 2014), or even directly favour the firms willing to hire them. Faccio et al. (2006) also show how companies hiring revolving regulators are more likely to be bailed out by the governments when struggling. Political connections are proven to be a market distortion resulting in a loss in efficiency (Brezis and Cariolle 2016). In particular high concentrations of political influence in private firms often lead to low trust in the legal system and property rights preservation, lower tax compliance and higher barriers to entry in the market for firms with lower levels of political connection (Slinko et al. 2005).