Features, Facts and Figures of European Cooperative Banking Groups over Recent Business Cycles

Abstract

This paper complements the existing scarce literature on financial cooperatives in various ways. First, we describe the background and evolution of European Cooperative Banking Groups (ECBGs). Second, we summarize the main reasons for the past disregard and recent revaluation of the cooperative banking model. Third, we empirically investigate to what extent the financial performance of ECBGs over recent business cycles is related to the original cooperative characteristics. To this end, we have constructed a new database with a broad range of financial variables for fifteen ECBGs in ten countries and collected similar indicators for entire banking systems of the countries in question. Our empirical findings suggest that many previous assertions and qualitative statements about ECBGs really hold in practice and not just in periods of financial distress. Furthermore, ECBGs do exhibit a different performance compared to all other banks throughout different stages in recent business cycles. Their corporate governance with members’ influence and specific decision making mechanisms seems to lead to a relatively low risk appetite and high capitalization, a high degree of stability and a predominant focus on retail banking. It must be emphasized that these conclusions cannot be extrapolated into the future. Indeed, an abundance of historical examples of successes and failures among all types of banks exists.tribution 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.