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About this book

This book offers a comparative analysis of how post-crisis restructuring has affected the evolution and prospects of small, locally-oriented banks. The discussion focuses specifically on “small” European countries; that is, countries with diversified banking systems, with a strong presence of cooperative and other forms of local banks. Such countries include highly developed economies like Italy and emerging European economies, such as Poland. The authors stress the unique importance of local banks in generating credit for both households and firms, and hence in contributing to overall economic growth. Chapters cohere around the argument that although smaller banks fared better than their larger counterparts the recent financial crisis, they have been directly and indirectly discriminated against in post-crisis restructuring schemes, and, as such, face many operational and strategic challenges today. The contributors are a distinguished group of researchers with expert knowledge of the competitive positions of and opportunities for locally oriented banks, who combine theoretical and empirical perspectives on these topics.

Table of Contents


1. The Evolution of Banking Regulation in the Post-Crisis Period: Cooperative and Savings Banks’ Perspective

The US-originated 2007–2009 crisis wave and the euro-originated 2010–2012 crisis wave elicited new regulations on banks’ risk-taking. Basel 3 and its accompanying measures upgraded banks’ capital and implanted further rules. We argue that, especially in Europe’s one-size-fits-all approach, the new rules impacted negatively on cooperative and savings banks. First, by typically relying more on Internal Rating Based models with respect to cooperative and savings banks, commercial banks continued to enjoy larger flexibility in determining their own capital requirements, at times raising the suspicion of regulatory arbitrage. Second, cooperative and savings banks, particularly if smaller sized, were unduly burdened with increasing costs of compliance to a regulation that failed the test of proportionality. We conclude that regulation may have contributed to endangering banking diversity in Europe.
Giovanni Ferri

2. The Role of Stakeholder Banks in the European Banking Sector

Socially oriented financial institutions and profit-oriented financial institutions have an equally long history in Europe. Stakeholder banks occupy a unique and important position in the European banking sector and they have been credited with stabilizing the financial market. Changes in financial markets have also caused significant changes in the operations of stakeholder oriented institutions, leading to remarkable convergence of the profit-maximizing sector and the stakeholder banks. At the same time, stakeholder banks have remained true to many of their original characteristics. The tensions between regulatory and competitive pressures on the one hand and the need for a more diverse financial sector on the other will continue to characterize the European banking market for years to come.
Panu Kalmi

3. Banks’ Business Models in Europe: Are Cooperative Banks Different?

The previous decades have seen a frenetic race to high returns on equity coupled with excessive risk-taking, encouraged by a lax monetary policy and accommodating banking regulations. This has led to major changes in the way banks conduct business. The failures of several large banks with unsustainable business models has spurred contagion and contributed to the global financial and Eurozone economic crises. However, not all types of banks are facing the same challenges and/or responding in the same way to crises. This chapter on business models attempts to address the diversity of banks in Europe and to better understand the response function of each category in a crisis situation in terms of performance and risk.
Rym Ayadi

4. Cooperative Banks: Is Demutualization an Answer? The Experience of Building Societies in the UK

The post-crisis business environment presents many challenges for the banking industry. While the fundamentals of financial intermediation remain unchanged, the crisis has created a paradigm shift in the environment in which banks operate. Small banks are the most affected: they are increasingly finding it difficult to compete, and their “going concerns” are constantly threatened. To survive in the new business climate, the European cooperative banking sector is undergoing comprehensive financial and structural transformations through different strategies. Drawing on the experience of the UK building societies, we examine the impacts of demutualization on banking markets. We argue that demutualization, despite its benefits, has negative implications for the mutual financial sector, and the diversity, competitiveness and the resilience of the banking markets.
Clements A. Akinsoyinu

5. Community Banks and Lending Technologies: Evidence from the Italian Retail Market

Using data from the Survey on Italian Household Income and Wealth (SHIW) gathered by the Bank of Italy, I test the effect of community banks on the probability of households becoming insolvent during the crisis. I find that a higher presence of community banks in local markets increases bankruptcies. This outcome is mainly driven by households living in small towns, where the competitive pressure from medium–large banks is lower. However, a higher use of transactional lending could mitigate the lower efficiency of community banks in screening and monitoring processes, while relationship lending does not seem to help community banks in loan underwriting procedures.
Carlo Milani

6. The Competitive Threats and Strategic Challenges to Polish Cooperative Banks: A Post Crisis Perspective

The aim of this chapter is to analyze the long-term impact of 2007–2009 global financial crisis on the Polish banking sector, with a particular focus on the competitive position and prospects of cooperative banks. It focuses on the consequences of the crisis on cooperative banks’ performance, concentrating in particular on bank stability, profitability, and lending policies. Analyzing bank performance, the chapter uses a new analytical tool: the risk-adjusted Multi Level Performance (MLP) score. For strategic threats, the results of cooperative banks’ surveys from 2013 to 2016 are interpreted. The chapter argues that the Polish cooperative sector, which has survived the crisis relatively well, has been negatively affected by the post-crisis macroeconomic environment and regulatory restructuring.
Krzysztof Kil, Ewa Miklaszewska

7. Does Banking Sector Structure Affect Bank Lending and Its Sensitivity to Capital Ratio? A Cross-country Study

Does the banking sector’s structure affect bank lending and its sensitivity to the capital ratio? Looking at banks operating in over 60 countries in the years 2000–2011, this chapter aims to resolve this puzzle. Its goal is also to find out whether country development and capital account openness, and inclusion in the Central and Eastern Europe (CEE) region explain the potential diversity of the banking sector structure and lending nexus. To resolve this problem we apply a two-step generalized method of moments (GMM) robust estimator. We find that an increase in concentration of the banking sector results in reduced bank lending and that concentration seems to affect the link between lending and the capital ratio. This effect is particularly strong in CEE.
Iwona Kowalska, Małgorzata Olszak, Filip Świtała

8. The Role of Competitive Framework for Sound Banking Sector in the EU-15 and the EU-12

The aim of this chapter is to present the role of market structure and competitive framework in the EU banking sector, with particular emphasis on the change in concentration and competition, in an attempt to determine the relationship between size and competition and risk-taking by banks. The empirical results based on panel data analysis find that the banking sectors with EU-27 are not homogeneous and find asymmetry between performance of EU-15 and EU-12 banking sectors. In fact, we have obtained different results concerning the impact of competition and size on financial stability for EU-15 banks (i.e., large banking sectors) and for EU-12 (i.e., small banking sectors).
Małgorzata Pawłowska

9. Banking Diversity and Trust in Banking Services

The objective of the research was to identify the determinants of trust in the banks in Poland. In 2006–2016, the role of the factors determining trust changed. Banks are expected not only to provide security and high-level services, but also to be responsible, honest, fair, principled and truthful. There is strong polarization and radicalization in the social evaluation of banks. Diversification of trust in the brands of individual banks is growing. The analysis covered 2004–2016. The research used the grade model of trust, Structural Equation Modeling, the CHAID analysis, touchpoints mapping and Latent Gold segmentation.
Marcin Idzik

10. The Role of Market and Cultural Diversification in the Evolution of the Polish Banking Sector

Poland is a good example of market and cultural diversification of the banking sector. This chapter is dedicated to the evolution of the banking sector since the beginning of the political and economic transformation process in 1989 until 2015. Much attention has been paid to the banks controlled by foreign investors, their significant role in cross-cultural management and the importance of market successes and failures of subsidiaries of transnational banking corporations. In particular, the impact of the last financial crisis on the Polish banking sector is analyzed.
Lech Kurkliński


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