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Why Do Specialized Banks Succeed? An Empirical Investigation of the Credit Business of Cooperative and Savings Banks

28 Pages Posted: 28 Feb 2008  

Rolf Böve

University of Muenster - Finance Center Muenster

Andreas Pfingsten

University of Münster - Finance Center Münster

Date Written: February 26, 2008

Abstract

There is empirical evidence that specialization in lending leads on average to lower loan loss provisions and a higher profitability. In this paper we examine whether a better monitoring quality and/or lending to industries with lower loss rates are able to explain these results.

The main results are as follows: Specialized banks show a lower ratio of actual to expected losses, i.e. they possess a higher monitoring quality than diversified banks. Specialized cooperative banks particularly lend to low-risk industries. The level of specialization has a stronger explanatory content with respect to the monitoring quality than monitoring expenses.

Keywords: bank lending, loan portfolio, diversification, expected loss, savings banks, cooperative banks

JEL Classification: G11, G21

Suggested Citation

Böve, Rolf and Pfingsten, Andreas, Why Do Specialized Banks Succeed? An Empirical Investigation of the Credit Business of Cooperative and Savings Banks (February 26, 2008). Available at SSRN: https://ssrn.com/abstract=1098421 or http://dx.doi.org/10.2139/ssrn.1098421

Rolf Böve (Contact Author)

University of Muenster - Finance Center Muenster ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany

Andreas Pfingsten

University of Münster - Finance Center Münster ( email )

Universitätsstr. 14-16
Muenster, D-48143
Germany

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