Theoretical perspectives on mission drift of public sector banks: The German case

The debate over how to finance the transition to renewable energy in the face of catastrophic climate change has put the issue of public banks back on the political agenda. In order to avoid the mistakes of the past, the article analyzes one of them, mission drift, the tendency to act outside the original mandate. This can result in the public bank no longer fulfilling its original public purpose. It can also lead to huge financial losses. German public banks are chosen for the case study because Germany has a large public banking sector that is suitable for analyzing the effects of different governance structures. Some of these banks suffer from mission drift. Mission creep is most pronounced among the Landesbanken, which have ventured into high-risk derivatives trading. Mission drift is discussed in the light of principal-agent theory, sociological new institutionalism, and hegemonic discourse theory. Placing mission drift in this larger framework precludes any simple panacea for keeping public banks true to their public purpose.