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)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(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.

The new cooperativism, the commons, and the post-capitalist imaginary

“…While a broader, co-operatively based economy has not yet come to fruition, co-operatives continue to be resilient in times of crisis, often playing an important role in stabilising local economies (Pérotin, 2006;Smith & Rothbaum, 2014). Co-operative banks have also demonstrated how financial stability may be secured (Lemzeri, 2013) and, in the US, credit unions have attracted members in the aftermath of the 2008 financial crisis (Chatterji et al, 2017). And worker buyouts or takeovers of failing conventional firms that see employees converting them into worker co-operatives have increased in numbers since 2008, especially throughout Southern Europe and Latin America, saving not only jobs and business entities but also entire communities from further decline (Jensen, 2011;Vieta, 2020aVieta, , 2020bVieta et al, 2017).…”

Was the Crisis Due to a Shift from Stakeholder to Shareholder Finance? Surveying the Debate

“…First, Mehran et al (2011) argue forcefully that banks would gain the most from governance/regulation fostering the role of non-shareholding stakeholders. As to empirical evidence, on individual bank data Beltratti and Stulz (2012) show that banks with more shareholders-friendly governance performed worse during the crisis while Lemzeri (2014) finds that diversified cooperative banking groups that retained the main features of their original model (i.e., STV orientation) contributed most to financial stability throughout European national banking systems. Also, Ferri et al (2014b) show that STV banks, especially cooperatives, were downgraded less than SHV banks by the credit rating agencies.…”

The Spirit of the Law Over Its Letter: The Role of Culture and Social Norms in Shielding Cooperative Banks from Systemic Shocks

“…On the asset side, cooperative banks had maintained a solid liquidity buffer and had not invested in toxic assets or in exotic investment instruments: this led to good liquidity and sound asset quality. On the other hand, cooperative banks were (and still are) some of the more highly capitalised institutions in Europe as they barely distribute profit but add it to their reserves or the banks' own funds (Lemzeri, 2014). Furthermore, high capital reserves provide cooperative banks with opportunities to obtain relatively cheap capital market funding, because this entails less risks for other creditors and thus lower risk premiums (Alexopoulos and Goglio, 2009).…”