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Intra-competitiveness and inter-competitiveness among mutual banks: the case of Trento

Gian Paolo Barbetta (), Luca Colombo (), Stefano Colombo () and Michele Grillo ()

International Review of Economics, 2016, vol. 63, issue 3, No 1, 195-214

Abstract: 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 market (search for similar items in EconPapers)
JEL-codes: G21 L41 R30 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s12232-016-0249-0

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