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Do spatial dependence and market power matter in the diversification of cooperative banks?

Carmelo Algeri, Antonio F. Forgione and Carlo Migliardo

Economic Notes, 2022, vol. 51, issue 3

Abstract: This study examines the determinants of cooperative banks' diversification proclivity, with consideration of the spatial dependence effect. The empirical analysis demonstrates that Italian cooperative banks operate as a network with significant spillover effects that should not be ignored. Indeed, local banks compete in the same market segment, and any shift in their diversification strategy has a cascading effect on neighbouring cooperative banks as a result of customer migration. Finally, we observe that an increase in bank market power results in a decline in local bank lending activity.

Date: 2022
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