Did the Extent of Hybridization Better Enable Cooperative Banking Groups to Face the Financial Crisis?

Abstract

The 2008 financial crisis affected both cooperative and joint-stock banking groups. But since these groups had adopted different forms and modes of governance, cooperative banks might have suffered less. Cooperative banking groups are seen as more risk-averse than jointstock banking groups. One possible explanation is that they are owned by their members and unlisted; another reason could be the extent of their presence in a local area, which enables them to reduce information asymmetry. Joint-stock banking groups are seen as more ready to take risks. As they are held by stockholders requiring high-returns, they are more motivated to undertake risky projects. As cooperative banking groups have evolved, some have adopted joint-stock banking group features. This evolution can have more important consequences on their management style. To study whether cooperative banking groups faced the financial crisis better than jointstock groups, we compared their sensibility to the financial crisis and their contribution to financial stability. We built a sample composed of European cooperative and joint-stock banks and computed a z-score indicator, reflecting the probability of bankruptcy. A dummy variable set for the governance criteria distinguishes between the different types of cooperative banking groups. We used a data panel treatment to highlight the potential differences due to governance factors over the entire period studied (2002-2011); we then divided this period into three sub-periods to determine whether some banks, according to the extent of hybridization, showed on the one hand more resistance, and on the other more resilience. Our principal conclusion is that cooperative banking groups that have retained the main features of their original model while diversifying their activities have contributed most to financial stability.