Table Of ContentPALGRAVE MACMILLAN STUDIES IN
BANKING AND FINANCIAL INSTITUTIONS
SERIES EDITOR: PHILIP MOLYNEUX
Co-operative Banking
Networks in Europe
Models and Performance
Federica Poli
Palgrave Macmillan Studies in Banking
and Financial Institutions
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University of Sharjah
Sharjah, United Arab Emirates
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Federica Poli
Co-operative Banking
Networks in Europe
Models and Performance
Federica Poli
Università Cattolica del Sacro Cuore
Milano, Italy
ISSN 2523-336X ISSN 2523-3378 (electronic)
Palgrave Macmillan Studies in Banking and Financial Institutions
ISBN 978-3-030-21698-6 ISBN 978-3-030-21699-3 (eBook)
https://doi.org/10.1007/978-3-030-21699-3
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To my beloved son
P
reface
Over the past 20 years, the increasing dominance of the shareholder own-
ership model in banking, with its main purpose of maximizing financial
returns to shareholders, has proved to be a toxic combination with finan-
cial deregulation, the creation of new financial instruments, and the con-
comitant rising levels of bank leverage that have taken place. Despite the
growing role of private joint-stock banks around the world, co-operative
banking is still a credible and high-performing alternative way of doing
banking. This is especially true in Europe where co-operative institutions
have historical roots dating back to the nineteenth century.
This book focuses on a sample of European co-operative banks (CBs),
which nowadays perform universal banking activities, adopting a business
model which is fundamentally based on mutuality, community develop-
ment, not-for-profit, and stakeholder orientation. From a lifecycle per-
spective, most European CBs have reached an advanced level of maturity.
Many modern CBs have evolved into large firms which mainly transact
with customers who are not co-operative members and which are run by
professional managers.
Many of the CB networks have turned into large, complex, financial
conglomerates that have little in common with the small-scale self-help
organizations from which they are descended. Forming networks allows
the pursuit of economies of scale and scope while also providing a safety
net or mutual support mechanism that can compensate for the risks associ-
ated with being an individual co-operative whose activities are concen-
trated on a homogeneous member base. The few empirical research
studies, conducted prior to and after the outbreak of the global financial
vii
viii PREFACE
crisis (GFC), into the effects on performance measures of the level of inte-
gration of financial co-operatives’ systems find that integration tends to
reduce the volatility of efficiency and performance measures; it appears to
help control managers’ expense preferences; and notwithstanding the
high costs of running hub-like organizations in highly integrated systems,
these systems operate at lower costs than less integrated systems.
Additionally, some authors have recently pointed out that the hybrid-
ization process of CBs has exposed them to severe losses following the
financial crisis, mainly due to their apex institutions and their highly diver-
sified activities in financial assets which have been harshly hit by the inter-
national financial turmoil. This raises the following question: are their
stability and resilience to financial shocks threatened by an overexposure
to risk and the introduction of the shareholder value logic into hybrid
networks? Considering the situation outlined above, it seems that there is
still plenty of scope to conduct further investigations into the resilience
and profitability of CBs in Europe, properly taking into account the orga-
nizational forms of their networks and governance.
The vast majority of European CBs are organized in networks, which
vary from loose associations to cohesive groups where membership may or
may not be compulsory. Forms of membership vary from country to
country, as do governance structures and risk management mechanisms.
Given the significance of co-operative banking in certain European coun-
tries (e.g. France, the Netherlands, Germany, Austria, and Finland) and,
by contrast, its decreasing importance in others (e.g. Italy), and also in
light of the events following the outbreak of the financial crisis and the
implementation of the Banking Union, it seems that further empirical
consideration of the co-operative sector is warranted.
With these considerations in mind, this book presents a survey of the
characteristics of different forms of integration of CB networks across sev-
eral European countries and provides an assessment of their impact on
several performance measures for the networks and their co-operative
components. With a few exceptions, the existing empirical studies neglect
to examine the features of the networks to which the banks belong.
Surprisingly, there is little evidence on the extent to which diverse organi-
zational forms of networks determine differences in individual banks’ and
networks’ performances across different countries. The principal objective
of this book is to fill this gap in the literature. The European countries
investigated are Austria, Finland, France, Germany, Italy, and the
Netherlands. In all of these countries CBs have a significant presence,
PREFACE ix
while the organizational forms of their networks vary widely. Therefore,
focusing on this sample of European countries may allow us to draw out
some insights and policy implications about the role that network organi-
zations play in determining the performance of CBs.
The book is organized into nine chapters. The first chapter outlines co-
operative banking’s historical roots, with its ground-breaking practices of
self-help, solidarity between members and financial inclusion irrespective
of social condition or wealth; its ongoing conceptualization; the principles
and values associated with co-operative banking; and its role in modern
economies. It offers a review of the empirical evidence on the performance
of the sector relative to commercial alternatives and its contribution to
financial stability in the European context. The second chapter examines
the rationales for and structures of co-operative banking networks both
from a theoretical perspective and as exemplified in the European coun-
tries under investigation. Networks facilitate the building of relationships
between 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.
From Chaps. 3, 4, 5, 6, 7, and 8, the banking co-operative networks that
exist in each of the six European countries surveyed are examined, respec-
tively: Austria, Finland, France, Germany, Italy, and the Netherlands.
In relation to each country, we analyze the positioning of the co-
operative system, its historical evolution, and the organizational model of
its network, and, finally, present an empirical analysis which covers two
research areas. The purpose of the first one is to verify empirically the
effects of the ongoing hybridization in co-operative banking over the
period 2005–2017, answering the following questions: have the mitiga-
tion of the principles of mutuality pursued by CBs and the growing com-
plementarity with markets as places of investment and funding meant that
the results achieved by CBs have become more similar to those of share-
holder-oriented banks? Which areas record analogies and differences in
results? Can a convergence in their respective performances be observed over
time? To answer these important questions, a set of commonly employed
indicators in the form of ratios proxying bank performances is identified
and tested. The second area of research aims to verify on a comparative
basis the contributions that the central institutions of the networks and
the available sample of the individual CBs were able to generate during the
period 2008–2017. To deal with this empirical issue, we examine some of
x PREFACE
the performance indicators selected, comparing the results achieved by
central institutions with those of their networks of CBs.
In Chap. 9, we use the entire sample of European countries analyzed
and, over different time periods between 2005 and 2017, test for the exis-
tence of significant differences between the co-operative banking sector
and the purely shareholder-oriented banks which have been selected. In
addition to this empirical assessment, the following research question is
also addressed: which of the network models seen so far enhances the per-
formances of the CBs that are part of them? Or in other words, which of
the types of networks analyzed has the most positive effect on the results
of their owners: the local CBs? To answer this question, we return to the
classification of co-operative networks introduced in Chap. 2 and exam-
ine, on a comparative basis, the performances of the different networks of
the individual CBs. The chapter concludes with a brief analysis of the most
important challenges that, in the opinion of the author, the CBs are called
to face in the coming years.
Milano, Italy Federica Poli
