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2018 | OriginalPaper | Buchkapitel

2. The New Economic Scenario and Its Impact on the Cooperative Banking Business Model

verfasst von : Eric Meyer

Erschienen in: New Cooperative Banking in Europe

Verlag: Springer International Publishing

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Abstract

Banks are operating in an extraordinary environment. Interest rates remain on a record low and at the same time regulatory burden increases the costs (especially for smaller banks), while digitization increases competition and reduces revenues. Cooperative banks are especially exposed to this new economic scenario, because they are relatively small banks, and due to their close connection to the real economy, they suffer from low interest rates. This contribution analyses how this new economic scenario affects European cooperative banks. The focus will be on the impact of the term structure and the interest rate level on the cooperative banks’ performance, how this affects other parameters of their business (equity, risk, loans) and which solutions they tried to implement.

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Vorheriges Kapitel An Overview of Cooperative Banking in Europe

Nächstes Kapitel Cooperative Banks Lending During and After the Great Crisis

Since the aspects of regulation are analysed in Chap. 4 and the effects of digitization are shown in Chap. 7, in the remainder of this chapter, the focus is on the effects of low interest rates only.

For a differentiation of cooperative banking groups, see also Chap. 1. The term “group” used in this chapter does not follow their definition. Group in this chapter comprises any group or network of cooperative banks consisting of cooperative banks and their central institutes, which they own.

The reform of the cooperative banking sector in Italy is described in Chap. 5.

If profitability is measured as return on equity, the shape of the curves is quite similar to the curves in Fig. 2.4.

The IMF considers a return on equity below eight per cent as weak profitability. All cooperative banking groups have been above this threshold in 2016 except Swiss Raiffeisen which is below but close to the eight per cent threshold. This is remarkable, since cooperative banking groups are well capitalized (the denominator of the ratio is quite large, and therefore cooperative banking groups have to generate even higher profits in order to pass the threshold).

For many, this is in contradiction to the lessons of the financial crisis, that the distribution of risks in markets makes them harder to monitor and to control in times of distress.

Altavilla, C., Boucinha, M., & Peydro, J.-L. (2017). Monetary Policy and Bank Profitability in a Low Interest Rate Environment. ECB Working Paper, No. 2105.

Bikker, J., & Vervliet, T. (2017). Bank Profitability and Risk-Taking Under Low Interest Rates. DNB Working Paper, No. 560.

Borio, C., Gambacorta, L., & Hofmann, B. (2015). The Influence of Monetary Policy on Bank Profitability. BIS Working Paper, No. 514.

Busch, R., & Memmel, C. (2015). Banks’ Net Interest Margin and the Level of Interest Rates. Deutsche Bundesbank Discussion Paper, No. 16/2015.

Claessens, S., Coleman, N., & Donnelly, M. (2017). “Low-For-Long” Interest Rates and Banks’ Interest Margins and Profitability: Cross-Country Evidence. International Finance Discussion Papers, No. 1197.

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Ennis, H. M., Fessenden, H., & Walter, J. R. (2016). Do Net Interest Margins and Interest Rates Move Together? Economic Brief, 16-05, Federal Reserve of Richmond.

Flannery, M. (1981). Market Interest Rates and Commercial Bank Profitability: An Empirical Investigation. The Journal of Finance, 36(5), 1085–1101.CrossRef

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Titel: The New Economic Scenario and Its Impact on the Cooperative Banking Business Model
verfasst von: Eric Meyer
Verlag: Springer International Publishing
Buch: New Cooperative Banking in Europe
Print ISBN: 978-3-319-93577-5

Electronic ISBN: 978-3-319-93578-2

Copyright-Jahr: 2018
DOI: https://doi.org/10.1007/978-3-319-93578-2_2