Cooperative Banks and Financial Stability

Cihák, Martin and Heiko Hesse ()

No 07/2, IMF Working Papers from International Monetary Fund

Abstract: Cooperative banks are an important, and growing, part of many financial systems. This paper empirically analyzes the role of cooperative banks in financial stability. Contrary to some suggestions in the literature, we find that cooperative banks are more stable than commercial banks. This finding is due to the lower volatility of the cooperative banks' returns, which more than offsets their lower profitability and capitalization. This is most likely due to cooperative banks' ability to use customer surplus as a cushion in weaker periods. We also find that in systems with a high presence of cooperative banks, weak commercial banks are less stable than they would be otherwise. The overall impact of a higher cooperative presence on bank stability is positive on average but insignificant in some specifications.

Keywords: Banks; Financial stability; Economic models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
Date: 2007-01-11
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