Intra-competitiveness and inter-competitiveness among mutual banks: the case of Trento
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Abstract
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.
Keywords
Cooperative banks Mutual banks Competition Local credit marketJEL Classification
G21 L41 R30Notes
Acknowledgments
We are very grateful to: Carlo Borzaga, Giovanni Ferri and Gilberto Turati for useful discussions and comments; two anonymous referees for their suggestions the helped improving the paper; the Editor Pier Luigi Porta for his support. We also wish to thank Euricse for funding the research and Federazione Trentina della cooperazione, Federazione Lombarda della Banche di credito cooperative and Federcasse for providing data and information.
Funding
This study was funded by EURICSE (European Research Institute on Cooperative and Social Enterprises) (RR: 005/12).
Compliance with ethical standards
Conflict of interest
The authors declare that they have no conflict of interest. Nonetheless, authors Gian Paolo Barbetta and Michele Grillo are members of the Committee of the Centro di Ricerche sulla Cooperazione e il Nonprofit of the Catholic University of Milano. The Centre receives grants from Federcasse (the Italian Association of cooperative and mutual banks).
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