Risk exposures of European cooperative banks: a comparative analysis

Davide Salvatore Mare,Dieter Gramlich

doi:10.1007/s11156-020-00884-y

Abstract

This study sheds light on risk exposures of cooperative banks in Austria, Germany and Italy. We investigate how major risk elements of banks in these countries have evolved over time, across countries and institutions. Cooperative banks’ exposure to risk is analyzed looking at aggregate risk categories. In detail, we address the questions of (a) how single risk categories can be assessed in a consistent way, (b) how the different risk categories behaved over time, (c) what factors drive the diverse risks and (d) if there are similarities of risk characteristics for specific clusters of cooperative banks. We find that credit, interest rate and residual risk have a high degree of commonality. Liquidity risk is somehow dissociated from the other categories. Nevertheless, the risk behavior appears to vary over time and for different countries. This feature is relevant for the prudent management of cooperative banks and for the assessment of systemic financial risk.

Highlights

Recent approaches in financial risk management emphasize a more comprehensive assess‐ ment of risk and return both from the perspective of a single institution’s aggregate risk1 (Imbierowicz and Rauch 2014; Li et al 2018) and from the perspective of aggregated banks’ risk (Black et al 2016; Caballero 2015)
Italian cooperative banks were largely less exposed to credit risk in the period before the financial crisis and some years into the beginning of the market havoc
This is true for the overall banking system where the percentage of outstanding non-performing loan rate was 18.1 percent in December 2015.24 In contrast, whilst median credit risk was higher at the beginning of the observed period for German mutual credit institutions, since 2009 we notice a significant decrease

Summary

Introduction

Recent approaches in financial risk management emphasize a more comprehensive assess‐ ment of risk and return both from the perspective of a single institution’s aggregate risk (Imbierowicz and Rauch 2014; Li et al 2018) and from the perspective of aggregated banks’ risk (Black et al 2016; Caballero 2015). Gramlich the combined exposure from multiple single risks is considered (enterprise risk). This is motivated from pillar 2 in the Basel regulatory framework requiring a more complete and firm-wide risk management.. In addition to the aggregate risk of single institutions, several approaches have been developed to account for the connected risks between insti‐ tutions or within the financial markets as a whole (systemic risk). Systemic risk is mostly driven from concentration and correlation issues across a group of financial institutions (Anginer et al 2018 and studies cited therein)

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Results

Conclusion