Cooperative versus Conventional (Joint-Stock) Banking In Europe: Comparative Resistance And Resilience During The Recent Financial Crisis

Abstract

During the banking crisis of the 1990s, French cooperative banks emerged as more resistant and efficient than joint-stock banks, which enabled them to improve their market share and increase their reserve capital. This subsequently became the keystone of the external restructuring that led to the transformation of cooperative banks into large universal banking groups. At the time, their competitive advantage relied mainly on a different approach to risk-taking, which was associated with their cooperative legal form and their specific governance model.However, the same features have clearly not prevailed during the financial phase of the most recent crisis. Whereas governance models in the banking sector have been deeply questioned, the original cooperative model has evolved differently within European countries, with a high level of hybridization in some and a very diffuse cooperative network in others. Some European cooperative groups have been damaged by the crisis, mainly because of the corporate and investment banking that formed part of their activity.Yet the recent crisis has revealed the importance of a resistant and resilient worldwide banking system and the diversity of legal forms and organizations could contribute to achieving this goal. In this paper, we assess the resistance and resilience of major joint-stock banks during the crisis and compare them to cooperative banks in different European countries and Canada. We conduct our analysis at an aggregated/consolidated level for these two categories of banks. Using different indicators (e.g., z-score, loans to the economy, return on equity) as dependent variables, we verify whether the cooperative form is synonymous with greater resistance or resilience, and whether the results may be explained by different organizational schemes in cooperative banking.

Non-performing loans in European Union: country governance dimensions

“…greater coverage financial support to the local economy, which are more resistant to global financial crises (Jaeger et al , 2016).…”

“…Generally, conventional banks have dual windows with Islamic banks, cooperative banks or ethical banks. The cooperative banks are conventional banks that are organised on a cooperative basis with five unique features, which are as follows: stabilising effect; corporate objectives; lower dependence on financial markets and short-term performance; executive compensation, lower information asymmetry and customer homogeneity; and greater coverage financial support to the local economy, which are more resistant to global financial crises (Jaeger et al , 2016). …”

“…(4) executive compensation, lower information asymmetry and customer homogeneity; and (5) greater coverage financial support to the local economy, which are more resistant to global financial crises (Jaeger et al, 2016).…”

Do credit unions have distinct objectives? Evidence from executive compensation structures

“…Certainly, there is no evidence to support the idea that credit union managers are using the tax exemption to enrich themselves at the expense of members. Moreover, the results highlight one mechanism by which the cooperative governance model may discourage excessive risk-taking and emphasize long-term resiliency over short-term performance (e.g., Jaeger et al, 2016). Various studies demonstrate that equity-based incentives in bank compensation packages promote short-term planning and greater risk-taking by bank executives (e.g., Chen et al, 2006;Coles et al, 2006).…”

Social Resources and Cooperative Resilience: Findings from the Canadian Cooperative Sector During the COVID-19 Pandemic

“…The capacity of cooperatives to face crises has been the subject of abundant literature, especially since the 2007-2008 financial crisis. Earlier studies have focused on trends of increased cooperative formation during downturns (Bonin, Jones and Putterman, 1993;Pérotin, 2006); while after the 2007-2008 financial crisis and the economic crisis that followed the focus shifted to the resilience of cooperatives (Birchall and Hammond Ketilson, 2009;Sánchez-Bajo and Roelants, 2011;Lemzeri, Jaeger and Ory, 2012;Roelants et al, 2012;Birchall, 2013;2017;Ouchene, 2015;Jaeger, Lemzeri and Ory, 2016). In the first case, cooperatives are presented as a response to socio-economic issues generated or revealed by a crisis or a shock (job losses, housing shortage, unemployment, etc.).…”