Cooperative banks: What do we know about competition and risk preferences?

•Market power increases individual bank stability, but the relationship is non-linear.•Most of the individual bank stability originates from market power in the loan market.•We do not find conclusive evidence for market power in the deposit market.•Diversification in assets and liabilities significa...

Full description

Saved in:
Bibliographic Details
Published in:Journal of international financial markets, institutions & money institutions & money, 2018-01, Vol.52, p.90-101
Main Authors: Clark, Ephraim, Mare, Davide Salvatore, Radić, Nemanja
Format: Article
Language:English
Subjects:
Bank risk-taking
Competition
Cooperative banks
Diversification
Market structure
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:•Market power increases individual bank stability, but the relationship is non-linear.•Most of the individual bank stability originates from market power in the loan market.•We do not find conclusive evidence for market power in the deposit market.•Diversification in assets and liabilities significantly increases cooperative banks’ solvency. In the wake of the Global Financial Crisis the discussion on preventive regulatory policies has generally overlooked the role of different business models and goals. Credit institutions with mutual objectives are a case in point that is the object of this study, which focuses on the relationship between competition and financial stability in European cooperative banking between 2006 and 2014. Our results show that there exists a hump-shaped relationship between market power and stability, particularly in the loan market. Interestingly, we also find that, diversification in assets and liabilities significantly increases cooperative banks’ solvency.
ISSN:1042-4431
1873-0612
DOI:10.1016/j.intfin.2017.09.008