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About this book

Over the past 20 years, the increased dominance in banking of the shareholder ownership model, whose main purpose is to maximize financial returns for shareholders, has proved to be a toxic combination with the financial deregulation the sector has undergone, the creation of new financial instruments and the concomitant rising levels of debt. Despite the growing role of private limited-liability banks around the world, co-operative banking still offers a compelling alternative, especially in Europe where the roots of co-operative institutions date back to the nineteenth century.

This book studies the characteristics of different co-operative banking models of networks across several European countries to assess their impact on the profitability and resilience of the networks and their co-operative components. To date, empirical studies have neglected to examine the features of the networks to which co-operative banks belong. Surprisingly, there is little evidence on the extent to which the diverse organizational network structures determine differences in the profits and stability of individual banks and their networks across different countries. The principal objective of this book is to fill this gap in the literature. The European countries considered are Austria, Finland, France, Germany, Italy and the Netherlands. In these countries, co-operative banks constitute a significant presence although the organizational forms their networks take are quite different. Focusing on this sample of European countries therefore affords insights and reveals policy implications about the role that network organizations play in driving the performances of co-operative banks, which will be of interest to academics, researchers, and students of banking and financial institutions.

Table of Contents

Frontmatter

Chapter 1. The Theoretical Background of Co-operative Banking

Abstract
Does co-operative banking constitute a viable alternative to the prevailing joint-stock model of modern times? This chapter examines the role of the co-operative movement from the early credit co-operatives, established by the founding fathers Schulze-Delitzsch and Raiffeisen in famine-struck nineteenth-century Germany, to the complex and hybrid iterations of the model in contemporary European economies. It outlines co-operative banking’s historical roots, with its groundbreaking practices of self-help, solidarity between members and financial inclusion irrespective of social condition or wealth, its ongoing conceptualization, the principles and values associated with co-operative banking, its role in modern economies, and examines empirical evidence on the performance of the sector relative to commercial alternatives and its contribution to financial stability in the European context.
Federica Poli

Chapter 2. Co-operative Banking Networks: Rationalities and Models

Abstract
Networks build relationships between co-operative banks (CBs) that have joined together for mutual benefit or to achieve a common purpose. The need to build alliances tends to increase in relation to the number of CBs existing in a territory, offering benefits in terms of supply alliances, monitoring functions, and the creation of social capital. This chapter examines the rationales for and structures of co-operative banking networks both from a theoretical perspective and as exemplified in the European countries under investigation. The typologies detailed include single- and multi-tiered horizontal and vertical networks, along with their governance structures.
Federica Poli

Chapter 3. Co-operative Banking in Austria

Abstract
Co-operative banking developed rapidly in Austria during the second half of the nineteenth century, following the ideas and principles of Schulze-Delitzsch and Raiffeisen. Today, the prevailing “alternative nature” of Austria’s highly competitive banking sector is demonstrated by the market dominance of two co-operative networks, Raiffeisen banks and to a lesser extent Volksbanks, which together provide almost 82% of the country’s total banks. Overall, in the period 2008–2017 the co-operative model shows significant differences in terms of higher capital and liquidity and lower investment space allocated to securities. It turns out to be slightly less involved in lending to customers when compared with the peer non-co-operative groups. However, if we turn to the credit risk exposure of the co-operative sector and the profitability results obtained from it, we find that the combination of risks and returns for the various bank models is rather similar over time. Additionally, co-operative banks (CBs) maintain a degree of operational inefficiency that is significantly higher than that of their peers among the joint-stock and savings banks.
Federica Poli

Chapter 4. Co-operative Banking in Finland

Abstract
The creation and spread of co-operative banking in Finland dates back to the early twentieth century, inspired by the ideas of German ideologist Raiffeisen. Following deregulation and restructuring, by 2016, 57% of Finland’s total banking assets were owned by foreign banks although domestic banks are regaining their share. The OP Financial Group, Finland’s largest co-operative network, has seen a dramatic increase in membership since 2004 and plays a key role in the country’s banking system. This chapter examines its performance in comparison with shareholder-oriented banking. From this comparison, it emerges that co-operative banking shows statistically significant divergences that are persistent over time, despite the growing hybridization of the sector and the potential pressures exerted by the prudential regulatory framework for a higher degree of convergence among business models.
Federica Poli

Chapter 5. Co-operative Banking in France

Abstract
Domestic credit institutions hold a dominant 92% of total banking assets in France, which boasts one of the largest banking sectors in the Eurozone with assets of over € 7 trillion. In spite of fierce competition from shareholder-oriented rivals, co-operative banks occupy a leading role in the banking system, with 26.6 million members in 2017 and a growth rate that dwarfs that of other European countries. This chapter details the complex network and apex structures and practices of the three main national co-operative networks, Crédit Agricole, BPCE Group, and Crédit Mutuel, and examines their performances, relative to leading commercial joint-stock counterparts. The two business models show significant differences in the results they have achieved. The capitalization of the co-operative groups is significantly higher. They devote more attention to credit to the real economy and, as a result, are less active on financial markets. Funding is more oriented toward deposits from customers. Co-operative groups hold substantial lower credit risk, while in terms of both profitability and efficiency, significant differences between the two business models are found only with regard to the net interest margin.
Federica Poli

Chapter 6. Co-operative Banking in Germany

Abstract
From its origins, German co-operative banking has grown to form one of the three main pillars of the modern German banking system. Today it comprises 18.5 million members and is one of the three largest banking groups in Germany. Grouped into a national financial network—BVR (Bundesverband der deutschen Volksbanken und Raiffeisenbanken)—while still retaining their independence, German co-operative banks continue to demonstrate principles of solidarity enshrined in their original mission and a focus on domestic and SME markets despite diversification opportunities arising from deregulation. This chapter examines the success of this hybrid model in comparison with domestic commercial rivals. Overall, the co-operative banking network and its apex have proved that they are able to develop higher performances than those of the first two German shareholder-oriented groups, recording economic and patrimonial results and distinct operational characteristics over time. The sole network of German CBs has shown to have a noteworthy strategic value that persists over time. The worsening of the average profitability and efficiency of co-operative banks in the last period contributes to supporting the ongoing intra-sector aggregation process.
Federica Poli

Chapter 7. Co-operative Banking in Italy

Abstract
The development of co-operative banking in Italy has differed from that of other European countries, and today, the co-operative sector plays a relatively modest role in the country’s economy. Consisting of two main types, the larger popular banks and smaller credit co-operative banks, the sector has some 1.8 million members, making co-operative membership a relatively rare phenomenon. The process of bank consolidation and the mandatory conversion of the largest popular banks into joint-stock companies have substantially reduced the sector since the 1990s, making commercial joint-stock banks the leading players in the national banking system. This chapter examines the structures and performances of the co-operative banking networks relative to some selected shareholder-oriented banking groups. Unlike what has been recorded in other European countries, Italian CBs have median values for lending activity lower than those recorded by commercial joint-stock banks and are riskier. The formation of the new strategic groups and of an IPS is expected to enable Italian credit co-operative banks to carry out operations for the restructuring of their loan portfolios more easily, as well as to make significant improvements in their risk management and in the offer of products, services, and technologies available to customers.
Federica Poli

Chapter 8. Co-operative Banking in the Netherlands

Abstract
From its origins in the Raiffeisen-inspired agricultural credit co-operatives of the late nineteenth century, co-operative banking in the Netherlands grew throughout the twentieth and early twenty-first centuries and today occupies a substantial role in the banking sector. Its history has been characterized by an intense democratic dialogue that has been instrumental in developing an organizational model which continues to give voice to its members through bottom-up structures. The results obtained by the co-operative banking group are compared with those obtained by the two largest commercial joint-stock banks. Generally, the test results indicate that the two business models do show significant differences in their outcomes. The co-operative banking group exhibits a capitalization which is statistically significantly higher than that of non-co-operative banks. However, if we compare the two business models, taking into account their asset and liability allocative choices, we find that there are strong similarities. In terms of the exposure to credit risk and the economic performances achieved (net interest margin, ROAA, ROAE, and cost to income), we do not detect any significant difference between the two groups of banks.
Federica Poli

Chapter 9. The Performance of Co-operative Banking Networks and the Challenges They Face

Abstract
This chapter draws together data from the entire sample of European countries analyzed in this study to reach conclusions about the comparative performances of co-operative and commercial joint-stock banks over time. It examines overall performance as well as the impact of network models, with their varying levels of strategic integration, to identify statistically significant differences in performance. Looking forward, it explores future challenges for the co-operative sector, with particular reference to digitalization and fintech, member engagement, and socially responsible governance models, and the current and potential future effects of the European prudential regulation.
Federica Poli

Backmatter

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