Mutual Banks Research Articles

Cost stickiness in the Italian Mutual Banks and comparison among Less Significant Banks

This study investigates cost stickiness in the Italian banking system, with a specific focus on Less Significant (LS) banks, including Mutual Banks (MBs), during the period 2006-2019. The research seeks to identify whether LS banks exhibit asymmetric cost behavior, particularly in response to income and credit risk level variations. Utilizing a unique dataset of 5,446 observations and applying econometric models adapted from the seminal work of Anderson et al. (2003), this study provides a novel analysis of cost stickiness within a banking context, an area that has been underexplored in the existing literature. The results reveal significant cost stickiness across all LS banks, with MBs demonstrating more pronounced stickiness than other LS banks. Additionally, the findings show that higher levels of credit risk exacerbate cost stickiness, while greater efficiency mitigates this effect. These insights underscore the importance of tailored cost management strategies in the banking sector, particularly for MBs, and contribute to understanding the unique challenges LS banks face in Italy. The research’s originality lies in its focused examination of cost behavior within a distinct subset of the Italian banking system, providing new perspectives on how smaller, regionally-focused banks manage financial pressures.

Does Economic Restructuring during Covid-19 in South Africa amount to Disaster Capitalism?

I explore the ANC government’s cadre-based (BBBEE/Broad-based Black economic empowerment) narrative in restructuring the economy amidst the pandemic, as an ideological vehicle to achieve an unstated nefarious purpose. The narrative that I aim to capture through the lenses of Naomi Klein’s disaster capitalism read with Reiman’s “pyrrhic defeat theory,” is built around the fictitious idea of Black economic empowerment. Ultimately it serves as a vehicle for fraudulent personal enrichment by politicians and well-connected tenderpreneurs. This double theoretical vision is meant to augment and explain the opportunity that the Covid-pandemic provided for its exploitation as an example of disaster capitalism. I traverse the events which led to the current global pandemic as well as the way or ways in which a faction within government and its institutions has generally colluded with Big Business to profit from it. I consider the South African government’s initial response to the pandemic as well as the ways in which such a response morphed into a self-enrichment scheme under the guise of BBBEE. This remains plausible even if one concedes that this purpose was not by original design or is solely driven by a faction within the ruling party. This discussion is preceded by an overview of the VBS Mutual Bank fraud scandal, foreshadowing my demonstration of how the pandemic proffers an opportunity for the RET-group within government to transform into a criminal shadow state as a going concern. In conclusion, I draw on the Covid-19 experience to suggest lessons for the future economic management of pandemics.

How inefficient is an inefficient credit process? An analysis of the Italian banking system

PurposeThe paper aims to disentangle the physiological credit risk from the credit risk coming from the inefficient screening and monitoring management process. The analysis is conducted on a sample of 338 Italian banks–56 joint-stock banks (SpA), 23 cooperative banks (Popolari) and 259 mutual banks (BCCs)–over the time period 2006–2017.Design/methodology/approachThe authors use the maximum likelihood method to estimate the efficient frontier, as a set of best management credit practices, which minimises the credit risk defined on the basis of the level of loans granted, the technical structure of the loan portfolio (such as credit lines, mortgages, consumer loans and other technical loan categories) and the interest rate charges.FindingsThe empirical results show that the increase in non-performing loans (NPLs) is related both to the severe and protracted recession in Italy, which significantly reduced borrowers' capacity to service their debt, and to other factors, such as banks' lending monitoring policies with limited capacity to work-out defaulted loans.Originality/valueThe authors propose a new approach to the study of the performance of the credit process. With the stochastic frontier, the physiological credit risk, assumed by the bank according to its lending activity and management choices, is separated from the credit risk resulting from an inefficient management of the screening and monitoring process. In addition, the authors analyse the determinants of the excess of NPLs. This aspect is considered particularly original because the scientific contributions which consider the causes of NPLs have largely focused on the level of NPLs not considering the physiological part, linked to the structure of the bank's loan portfolio and its operational strategy and therefore not compressible and in any case not attributable to mismanagement or moral hazard.

Derivative use, ownership structure and lending activities of US banks

Following the 2007–2008 financial crisis, there is widespread interest in understanding how derivative use drives bank lending behavior. Our paper examines the impact of bank ownership structure on the relationship between derivative use and lending activities of U.S. banks. We find that lending recovered faster in larger banks than smaller banks post-crisis and in line with Diamond’s (Diamond DW 1984 Financial intermediation and delegated monitoring. Rev Econ Stud 51:393–414) systemic risk reduction theory, derivative use is positively associated with lending growth. Ownership is significant in explaining the magnitude of the relationship even after controlling for alternative specifications of the derivative use variable. In both normal and crisis periods, the speed of adjustment of lending to derivatives use by stock banks lags that of mutual banks. We suggest that speculative trading in derivatives substitutes for lending growth to a larger extent for stock banks compared to mutual banks. These findings may have important implications for investors and bank regulators.

금융위기 시 예금자 우선변제제도의 역할에 관한 연구 : 한국의 부실저축은행 구조조정을 중심으로

금융위기 시 예금자 우선변제제도의 역할에 관한 연구 : 한국의 부실저축은행 구조조정을 중심으로

THE PECULIARITY OF THE COOPERATIVE AND MUTUAL MODEL: EVIDENCE FROM THE EUROPEAN BANKING SECTOR

The crucial role of mutual banks in promoting local development is highlighted by an extensive theoretical and empirical literature. The historical success of mutual banks derives not only from their specific business model, but also from their peculiar and distinguishing corporate governance with member ownership. According to a copious literature, these features have probably allowed mutual banks to better withstand financial crisis. This work compares the cost efficiency of European mutual banks by analyzing a sample which consists of the universe of all the banks operating in Italy, Germany, France and Spain over the period 2011–2016, by employing a stochastic approach (Stochastic Frontier Analysis-SFA) to determine the effects of the recent financial crisis on the efficiency level of this particular kind of bank. The analysis aims to point out the determinants of efficiency in order to understand if the mutual model reveals to be still attractive in the modern banking system. The main contribution of the paper to previous literature consists in comparing different impacts of financial crisis on efficiency of mutual banks in main European countries. Furthermore, the results enrich the recent debate about the cooperative and mutual banking system and its raison d’être. Our results show that the European mutual banks reveal a higher degree of efficiency with respect to commercial banks. Cost efficiency appears to be significantly and negatively related to the level of regulatory capital, the level of credit risk, the level of leverage and the cost-income ratio. On the other hand, it is significantly and positively related to the profitability of the traditional lending activity, to the level of prudence in terms of provisions against credit risk and to the amount of liquidity as a buffer against unexpected troubles.

Are mergers among cooperative banks worth a dime? Evidence on efficiency effects of M&As in Italy

We study the intense wave of mergers among Italian mutual cooperative banks (Banche di Credito Cooperativo, BCCs) trying to assess whether those mergers were efficiency-enhancing. Specifically, we employ a two-step procedure: first estimating bank-level cost efficiency scores over 1993–2013 via a stochastic frontier approach, then trying to explain the estimated BCCs' scores with a set of merger status dummies (never merged, before the first merger, merged once, merged twice, etc.) and a vector of control variables. We find that mergers increase mutual banks' cost efficiency only in 5% of the mergers, precisely those in which a BCC has merged at least three successive times with other BCCs. Besides, we conjecture that the serial mergers led those BCCs to reach remarkably large size and this could harm especially marginal borrowers (i.e. those likely served by smaller banks but neglected by bigger ones), with strong adverse impact on development and inequality and violating BCCs' ethics and mission.

Man's Better Angels: Romantic Reformers and the Coming of the Civil War by Philip F. Gura

Reviewed by: Man's Better Angels: Romantic Reformers and the Coming of the Civil War by Philip F. Gura Tim Roberts (bio) Man's Better Angels: Romantic Reformers and the Coming of the Civil War. By Philip F. Gura. ( Cambridge, MA: Harvard University Press, 2017. Pp. 328. Cloth, $29.95.) Scholars have remarked on the litany of social experiments, many committed to moral and political reform, which flamed in the early American republic. Alice Felt Tyler's and Ronald Walters's surveys explained mass movements including temperance, school reform, and antislavery as well as the more eccentric phenomena of utopian communities and phrenology. Rooted in Protestant evangelical religion, these reforms reflected Americans' grappling with the country's diversification and expansion and the spread of market forces. Tyler attributed this reform era to Americans' general optimism, predisposing them to be open to change. Walters, conversely, located the reforms' impulse in middle-class Americans' concern about modernization, along with confidence that improved or corrected behavior could cure modernization's evils. Tyler emphasized the reformers' lasting impact after the Civil War; Walters deemed their ambition to thwart capitalism a failure.1 Philip Gura offers a different approach to explore this reform impulse, providing not a social history survey but an interpretation of selected important reformers: George Ripley, Horace Greeley, William B. Greene, Orson Squire Fowler, Mary Gove Nichols, Henry Thoreau, and John Brown. Like his predecessors, Gura sees social reform principally characterized by faith in individual agency and in anticipation that the nation's institutions would respond to Americans' capacity for good behavior. He emphasizes, however, the central impact of the Panic of 1837, the complexity of whose domestic and international causes escaped reformers' (and most Americans') understanding. Rather than lobby for greater government control of financial institutions and/or commodity prices, reformers, reflecting a general attitude of the age previously documented by Scott Sandage, attributed the problem to individual moral corruption, which, they believed, precipitated, rather than resulted from, financial failure. But for reformers, self-examination could [End Page 192] lead to repentance; newly conscientious individuals imagined, and many constructed, various prototypes of a good society. A few radicals even engaged in dramatic acts of rebellion against the corrupted institutions of an unregulated market society.2 In its organization around selected key or representative figures, Gura's book is reminiscent of Daniel Walker Howe's study of various individuals who were intent on self-improvement as a basis for remaking themselves and their society. But while Howe noted the success stories of America's culture of self-construction before the Civil War, Gura, like Walters, emphasizes the flawed idealism of his coterie. Ripley's Brook Farm utopian community, for example, championed self-realization but could not earn enough income to be sustainable. Greeley's interests, meanwhile, were too eclectic, and his advocacy of Associationism, a model of cooperative work and living adapted from the French socialist Charles Fourier, seemed, to many Americans, too socialist. Too late, Gura implies, Greeley realized that it was slavery that needed confronting.3 Likewise, fearful businessmen blocked Greene's advocacy of mutual banking laws, a stateless system he adapted from the writings of the anarchist Pierre-Joseph Proudhon, in which all of a bank's subscribers, regardless of financial condition, could borrow the bank's fiat money at a minimal interest rate in order to buy land. Fowler's bestselling books about how the human brain's different regions directed certain behaviors or personality traits attracted a range of readers, from women interested in the benefits of looser clothing to prison wardens seeking to cure inmates. But these fascinations hardly constituted institutional reform. Nichols, like others, eschewed abolitionism because of a "preoccupation with another kind of bondage closer to home" (204). For her this meant advocacy of women's autonomy through their education on alternative nutrition, hydropathy, sexual activity, practice of birth control, and rejection of marriage, another influence of Fourier. Of Gura's reform leaders, Thoreau and Brown came closest to grappling with what became the critical issue of the era, slavery. Thoreau famously called for civil disobedience against the Mexican War, which he considered a proslavery conquest. Yet while a man's imprisonment [End Page...

DIVERSITY MEASURES AND QUALITY OF BANKS’ BOARDS: THE ITALIAN CASE

Most of the studies in corporate governance in banks and other types of firms investigate board diversity and quality separately, without considering the possible relationship between these two. To fill this gap, this study investigates through a new methodological approach the level of quality and diversity of the boards of a sample of Italian banks using a proprietary hand-collected database; in addition, it examines the relationship between diversity and quality of boards to verify whether more diversity consistently relates to higher quality, in accordance with the regulatory approach.Evidence shows that especially small and mutual banks need to improve quality and diversity, as they probably suffer from their limited attractiveness to top profile directors. Moreover, on analyzing interrelations we find evidence of a positive association between board diversity and quality. In particular, financial skills and experience of directors improve the qualitative level of banking boards.

ПЕРЕДУМОВИ ТА ПЕРСПЕКТИВИ РОЗВИТКУ БАНКІВ ВАРТОСТІ


 
 
 The state of the modern financial market is not homogeneous. Various organizations act on it, such as world, investment, public, retail, social, church, green, folk and development banks; official and unofficial banking organizations; shadow financial system. Mutual assistance banks, rural banks, credit unions, savings and loan funds are institutions formed on the basis of mutual assistance among people. There are also banks operating in the «western» financial tradition and those operating under the laws of Sharia. Value banks are social, ethical, green and public banks without a definite management model that function in the form of joint stock companies, unions and private enterprises. In the article, the ways of formation, organizational structures, historical and religious preconditions of creation and modern tendencies of development of value banks are viewed.
 
 

Financial Illusions During Transition: Case of Romania

Sometimes, the promoters of the financial products that promise high abnormal returns succeed in hiding the substantial risks associated. Such financial illusions have some particularities in countries that experience the transition to the market economy, where the financial systems are fragile. In this paper we approach some types of financial illusions experienced in Romania between 1990 and 2000: fraudulent banks, “mutual-aid games”, rudimentary mutual funds and popular banks. We conclude that they were favored by circumstances such as the monetary disequilibrium, the delayed privatization of the banking sector, the financial knowledge lack among the population, the financial legislation deficiencies and the political corruption.

Community in Credit Unions: Has banking regulationimpaired CSR in Australian Customer Owned Banks?

This paper presents a sector scan of a sample of Australian Credit Unions and Mutual Banks to examine the CSR reporting from the perspective of the three pillars model proposed by vanOorschot, de Hoog, van der Steen and van Twist (2013). It is argued that the pillar requiringco-operatives to ensure activities which ‘aim for change’, should promote increasing adoptionof CSR. The paper theorises that regulatory requirements imposed in Australia on all bankinginstitutions carry a higher proportional cost to the customer owned banking sector than theshareholder based commercial banks. This consumption of the limited financial resourcesavailable in this sector of banking services, are inhibiting regional Customer Owned Bankingproviders, as co-operative organisations, to fulfil the required co-operative principle to instigatechange for the betterment of communities. This failure could signal the demise of some entitiesin the jurisdiction of Customer Owned Banking.

A Study on Cost Efficiency of Mutual Banks in Korea

A Study on Cost Efficiency of Mutual Banks in Korea

Are Mergers among Cooperative Banks Worth a Dime? Evidence on Post-M&A Efficiency in Italy

In this paper we study the intense wave of mergers among Italian mutual cooperative banks (Banche di Credito Cooperativo, BCCs) and try to assess whether those mergers were efficiency-enhancing. For the purpose, we employ a two-step procedure: we first estimate bank-level cost efficiency scores for a large sample of Italian banks in the period 1993-2013 by means of a stochastic frontier approach, then we try to explain the estimated BCCs’ cost efficiency with a set of merger status dummy variables (never merged, before the first merger, merged once, merged twice, etc.) as well as with a vector of control variables. We find that mergers increase mutual banks’ cost efficiency only after a BCC has merged at least three successive times with other BCCs, hence after reaching a remarkably large size. However, we conjecture that this growth in size could harm especially marginal borrowers (i.e. those who are likely to be served by smaller banks but neglected by bigger ones), with a strong and adverse impact on development and inequality and in contrast with BCCs’ ethics and mission.

Intra-competitiveness and inter-competitiveness among mutual banks: the case of Trento

Cooperative banking entails a typical trade-off. The small size, specialization and high correlation of customers’ credit risks are often considered typical weaknesses of local mutual banks. Nonetheless, these banks appear to be largely non-substitutable providers of loans to local economies, given their comparative advantages in screening, monitoring and enforcement with respect to other banks. We explore the idea that the solution of this trade-off is affected by the interplay between banks’ ownership structures and the competitive conditions of the markets in which they operate. Focusing on the banking market of the Italian province of Trento, characterized by a significant presence of cooperative banks and a variety of different competitive environments at the local level, we find that a heightened competition among mutual banks is not socially beneficial with respect to market conditions in which a mutual bank only competes with non-mutual banks. We find that mutual banks competing with each other show a lower ability to transform local savings into local loans, as well as a worse risk allocation.

Competition Versus Efficiency: What Drives Bankss Spreads in Italian Banking System?

Economists have long debated the relationships between market structure of banking sector and the profitability. General consensus asserts that more concentrated market is associated with higher profitability: banks with higher market share generally achieve higher profits. This empirical evidence can however hinge on two opposite explanations: in the first case banks increase their market share (via mergers and acquisitions) in order to exploit the resulting stronger market power and impose higher prices to their clients; the second explanation tells that more cost-efficient banks are able to lower the prices applied to their clients and therefore to gain new clients and finally enlarge their market share. In both cases there is a positive link between market share and profitability, but in the former what actually plays a crucial role is a non-competitive force (Relative Market Power Hypothesis, henceforth RMP), in the latter the relationship is driven by the greater efficiency of banks which enlarge their market share by reducing prices (X-Efficiency Hypothesis, ESX). We run a 4-years panel data analysis (2008-2011) in order to disentangle the above alternatives hypothesis (RMP versus ESX) for the Italian market. First we estimate the cost efficiency for a sample of more than 200 banks by applying the Stochastic Frontier Analysis (SFA). In the second step we regress bank spreads on efficiency scores and market structure variables in order to identify which process leads the price setting of Italian banks. Difference in the legal organization of bank (mutual, cooperative, and commercial banks) and type of business relationships established are controlled for.

The competition and coexistence of mutual and commercial banks in New England, 1870–1914

Scholars have studied the US banking systems of the late nineteenth century, but the presence and influence of mutual savings banks has largely gone unexamined. A new annual database of New England banks shows that mutual savings banks had a significant presence in the postbellum banking system. Mutual savings banks accounted for about 75 % of the region’s total bank deposits and largely avoided financial panics. The banks seemed to have complemented rather than competed with national banks. Mutual savings bank growth was correlated with agriculture and urbanization, whereas national bank growth was correlated with manufacturing. Mutual savings banks also channeled significant funds to national banks through the interbank network.

Modeling Policyholder Behavior through Insurance Resonant Marts for Pricing Options and Guarantees

Background: The 11th Annual Conference of Asia-Pacific Risk and Insurance Association was held on July 22-25, 2007 in Taipei, Taiwan. The first author participated in this annual conference where he met the second author who was invited to deliver two plenary speeches on Corporate Governance and Financial Institution Regulation [1] and Alternative Investments for Financial Institutions [2]. The first author was then working as consultant with i-flex solutions, a subsidiary of Oracle and the second author was Vice President of Strategic Business Initiatives Units at ING Life Insurance in its Taiwan operation. The two authors decided to start collaborating on a research paper titled “Modeling Policyholder Behavior through Insurance Resonant Marts for Pricing Options and Guarantees.” The first version of the paper was submitted for research purposes to ING Insurance Risk Management Global Conference 2007 [3] which was held in Beijing, China. Although it was neither presented nor published, the working draft was constantly updated and revised. In 2015, after eight years of continuous research collaboration, the two authors decided to submit the final version of the paper to the 5th World Congress on Engineering and Technology for scholarly presentation. Aim: The competition in the insurance industry is extremely fierce. Insurance companies are under tremendous pressure to retain and increase their customer base, to offer services at attractive rates and provide returns competitive with mutual funds, equities and banks, to achieve profitability across various lines of insurance, to comply with statutory norms etc. Despite having the best of breeds, such as accountants, actuaries [4], lawyers, underwriters, IT experts, consultants, etc., many insurance companies face severe problems to cope with and survive under such pressures. Insurance companies are now striving towards creating innovative products that can match the expectation of the customers with respect to investment returns and risk coverage at competitive rates, which is a very challenging task. Also it is very important to measure the expectations of the customers keeping in mind that those customers are already owners of other financial products. Pricing always follows the expectations and without proper data support, Model risk is imminent. Even if a product is correctly priced, without understanding the behavior of the policyholder towards various financial products will lead to heavy lapses [4]. The authors describe a new framework called UIRDM Approach (Unified Insurance Resonant Data Mart) for the insurance companies wherein this approach stresses the need to think beyond the insurance boundaries.

Banking Regulatory and Market Framework in South Africa

This paper examined and discusses banking regulation and market framework in the South African context. In South Africa, the principal legal instrument which seeks to achieve credibility, stability and economic growth, is the Banks Act, No. 94 of 1990 (the Banks Act). Further, South Africa has 17 registered banks, two mutual banks, 12 Branches of international banks in the Republic of South Africa, 43 representative offices and 15 controlling companies. The dominant banks in the South African banking landscape where outlined as the Standard Bank of South Africa, ABSA Bank, FirstRand Bank and Nedbank. It was observed that the reason for the increased market share by the big four banks in South Africa was seen as caused by the decline of confidence levels in the small banks as a result of Saambou’s Bank failure. Due to the dominance of four banks, using the HHI it was exhibited that the level of concentration in the South African banking sector was high at 0.187 in 2011. This paper concluded that South Africa has a developed and well regulated banking system which compares favourably with regulatory environment applied by the developed countries. However, it was cautioned that further regulation such as the recently announced ‘Twin Peaks' approach to financial regulation could result in unintended consequences, such as driving a larger share of activity into the shadow banking sector.

Credit, venture capital and regional economic growth

In this paper we investigate the role of credit and venture capital investments on regional economic growth. In particular, the paper investigates the nexus between finance and regional economic growth by means of an international comparison, making joint use of banking system structural indicators (i.e. the predominance of mutual bank circuits or large commercial banks) and risk capital values obtained in a local context. The dataset consists of a panel of 53 regions belonging to three countries, Germany, Italy and Spain, for the period 1995–2008. To avoid a problem of endogeneity, we estimate a dynamic panel using the generalised method of moments (GMM). The results underline the important role played by different types of financial intermediaries in regional economic growth: both mutual and commercial banks have a strong positive effect on regional economic growth, but the role of mutual banks is greater in economically deprived areas [EDAs]. Finally, the positive effect of venture capital investments is also more effective in EDAs regions.