A Model for the Interest Margin of a Risk-Neutral Bank. The Role of the Bank Orientation

15 Pages Posted: 18 Jun 2014

Date Written: June 17, 2014

Abstract

This paper examines the impact of the bank orientation on classical banking business, distinguishing between shareholder and stakeholder banks, and analyzes the preconditions for positive social welfare effects from the existence of stakeholder banks. For this reason we develop a theoretical bank decision model based on the utility approach and focus on the determination of the interest margin. Vis-à-vis previous studies, we connect to the recent literature on the agency view considering the lessons from recent financial developments. Moreover, we study the influence of the social mission on the bank pricing strategy, merging these two different fields for the first time. The results highlight the fundamental role of a strict and prudential regulation of the social mission as well as of the existence of internal and external control mechanisms, in order to avoid a misuse of stakeholder banks for distorting aims, to increase the system stability and to reduce market failures. Therefore, a correct implementation of these aspects represents a precondition for a positive contribution of stakeholder banks to the social welfare.

Keywords: Social welfare; stakeholder banks; shareholder banks; cooperative banks; savings banks; interest margin

JEL Classification: G21, G34, H81, P13

Suggested Citation

Pedrotti, Marco, A Model for the Interest Margin of a Risk-Neutral Bank. The Role of the Bank Orientation (June 17, 2014). Journal of Entrepreneurial and Organizational Diversity, Special Issue on Cooperative Banks, Vol. 3, No. 1, 2014, 167-180, Available at SSRN: https://ssrn.com/abstract=2450103

Marco Pedrotti (Contact Author)

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
51
Abstract Views
1,448
rank
453,984
PlumX Metrics