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Co-operative Banking Networks: Rationalities and Models

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Part of the Palgrave Macmillan Studies in Banking and Financial Institutions book series (SBFI)

Abstract

Networks build relationships between co-operative banks (CBs) that have joined together for mutual benefit or to achieve a common purpose. The need to build alliances tends to increase in relation to the number of CBs existing in a territory, offering benefits in terms of supply alliances, monitoring functions, and the creation of social capital. This chapter examines the rationales for and structures of co-operative banking networks both from a theoretical perspective and as exemplified in the European countries under investigation. The typologies detailed include single- and multi-tiered horizontal and vertical networks, along with their governance structures.

Keywords

  • Networks
  • Institutional protection schemes—IPSs
  • Supply alliances
  • Monitoring
  • Social capital
  • Horizontal networks
  • Vertical networks
  • Network of networks
  • Two-tier network
  • Three-tier network
  • Multi-tiering
  • Apex entity
  • Atomized networks
  • Consensual networks
  • Quasi-strategic networks
  • Strategic networks
  • Hybridization

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Fig. 2.1
Fig. 2.2

Notes

  1. 1.

    According to Teece (1992), alliances are better suited than market transactions to the repeated exchange of tacit, routine-embedded knowledge because of the increased social interaction and enhanced incentive alignment and monitoring features on which they are grounded.

  2. 2.

    However, as noted by Fonteyne (2007), the lower turnover in CBs as well as their main focus on traditional retail banking activities may lessen their attraction to top talent. This, in turn, may limit the ability of CBs to enter and develop more sophisticated financial market activities. A remedy to these sources of potential limitations has been found by large CB networks in the segregation of more innovative financial businesses into separate entities, more often with a joint-stock legal nature.

  3. 3.

    With some notable exceptions. Italian popular banks, for instance, do not have in place any form of mutual support.

  4. 4.

    See also European Central Bank (ECB) (2016), Guide on the approach for the recognition of institutional protection schemes (IPS) for prudential purposes, July.

  5. 5.

    Under Art. 113(6) undertakings included in the scope of IPS are institutions such as financial holding companies or mixed financial holding companies, financial institutions, asset management companies, or ancillary services undertaken subject to appropriate prudential requirements (Art. 113[6] point a). Furthermore, the institutions must be established in the same Member State as the institution. See ECB (2016), Guide on the approach for the recognition of institutional protection schemes (IPS) for prudential purposes, July.

  6. 6.

    The IPSs are different from the solidarity schemes that have long been present in the sector. An IPS is subject to ECB authorization and enjoys more lightened prudential requirements.

  7. 7.

    The counterparties must be established in the same Member State as the institution which applies the 0% risk weight.

  8. 8.

    With the exception of exposures giving rise to Common Equity Tier 1, Additional Tier 1 and Tier 2 items (ECB 2016).

  9. 9.

    As reported in the list of financial conglomerates for the year 2017 published by the Joint Committee of the European Supervisory Authorities. Available at https://esas-joint-committee.europa.eu/Publications/Guidelines/List%20of%20financial%20conglomerates%202017.pdf.

  10. 10.

    In accordance with Art. 49(1) of Regulation (EU) No 468/2014 and of the European Central Bank (ECB/2014/17) (the Single Supervisory Mechanism Framework Regulation), the ECB has direct supervision of significant entities and significant groups. To be considered significant, at least one of the following criteria must be met: (1) the total value of assets above € 30 billion, (2) relevance at the country level, (3) total value of assets above € 5 billion and high cross-border assets/liabilities in more than one other participating Member State; request or granting of funding from the European Stability Mechanism or the European Financial Stability Facility.

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Poli, F. (2019). Co-operative Banking Networks: Rationalities and Models. In: Co-operative Banking Networks in Europe. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-21699-3_2

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