Market Structure and Financial Stability: the Interaction between Profit-Oriented and Mutual Cooperative Banks in Italy

Abstract

In this study, we analyze the relation between market structure and financial stability both theoretically and empirically by considering two types of agents: profit-oriented banks and mutual cooperative banks in the context of Italy. The main findings show that under the condition that mutual cooperative banks are not dominated by borrowers, there is an inverted U-shaped relation in which a less concentrated market structure increases stability for both types of banks but a more concentrated market structure reduces it.

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

“…Relatively instead to the computation of bank efficiency, departing from the asset model of Sealey Jr. and Lindley (1977), the choice of input and output vectors relies on a large economic literature which has been devoted to assess the efficiency of banking institutions (Mamatzakis et al, 2021; Mostak Ahamed et al, 2021; Prior et al, 2019; Tsionas & Andrikopoulos, 2020; Tsionas & Philippas, 2021) and on a stream of recent contributions which have dealt with the analysis of the efficiency of the Italian banking system (Amendola et al, 2021; Barra et al, 2016,b; Barra & Ruggiero, 2021b; Barra & Zotti, 2019; Coccorese & Ferri, 2020). Following this approach, 7 the output vector (y) comprises customer loans (y 1 ); services (administrative) or non‐traditional activities, that is, commission income and other operating income (y 2 ); and securities (y 3 ), that is, bank loans, Treasury bills, bonds and other debt less bonds and debt securities held by banks and other financial institutions.…”