Is competition among cooperative banks a negative sum game?

Abstract

Does ‘inner competition’ – rivalry among network members – worsen performance in a network of cooperative banks? By weakening the functionality of the network, inner competition might, in fact, endanger network-dependent scale economies. Testing our hypothesis on Italy's network of mutual cooperative banks (Banche di Credito Cooperativo – BCCs), we find a worsening of performance of both incumbents and (even more) aggressors when BCCs compete among themselves. However, the worsening is mild when BCCs compete with comparable non-mutual banks external to the BCC network. We conclude that inner competition among cooperative banks is a negative sum game and, thus, limiting it would be desirable to preserve the stability of cooperative banking networks.

Basel accords and banking inefficiency: Evidence from the Italian local market

“…Part of the profits of mutual banks are reinvested back into the community to promote the sustainable development of their territories. Cooperative banks, on the other hand, can suffer from their small size, specialization, and high concentration of credit risks, but they are not substitutes for banks in providing loans to local borrowers (Coccorese and Ferri, 2017). The literature also points out a distinction between the types of information the two types of banks can obtain.…”

What affects bank market power in the euro area? A country-level structural model approach

“…We also include the country-level Z-score (ZSCORE), a widely used indicator of overall bank stability (Boyd and Graham, 1986;Hannan and Hanweck, 1988;Boyd and Runkle, 1993;Maechler et al, 2007;Laeven and Levine, 2009;Demirgüç-Kunt and Huizinga, 2010;Delis and Kouretas, 2011;Beck et al, 2013;Fang et al, 2014;Lepetit and Strobel, 2015;Coccorese and Ferri, 2019).…”