Optimal Interest Rates in Cooperative Banks with Non-Member Customers

20 Pages Posted: 18 Jun 2014

See all articles by Ivana Catturani

Ivana Catturani

European Research Institute on Cooperative & Social Enterprises (EURICSE); University of Trento

Ragupathy Venkat

Centre for Development Studies (CDS) India

Date Written: June 17, 2014

Abstract

Previous attempts to understand the functioning of cooperative banks have often considered them as being similar to credit unions. However, we argue that credit unions are only a subset of cooperative financial institutions and the models used to describe their behavior cannot be generalized to all cooperative banks. Additionally, there is an important factor that characterizes cooperative banks’ behavior and outcomes, which does not apply to credit unions: the role of nonmembers and their contribution to the members’ overall welfare through bank deposits and interest earnings. In this paper, we move from the Smith et al. (1981) model developed to describe credit unions’ pricing policy on interest rates and we propose a more general model by incorporating non-member depositors and borrowers, who play a key role in determining cooperative banks’ interest rates.

Keywords: Optimal interest rates; cooperative banks; credit unions

JEL Classification: D21; G21

Suggested Citation

Catturani, Ivana and Venkat, Ragupathy, Optimal Interest Rates in Cooperative Banks with Non-Member Customers (June 17, 2014). Journal of Entrepreneurial and Organizational Diversity, Special Issue on Cooperative Banks, Vol. 3, No. 1, 2014, 181-199. Available at SSRN: https://ssrn.com/abstract=2450104

Ivana Catturani (Contact Author)

European Research Institute on Cooperative & Social Enterprises (EURICSE) ( email )

Via S. Giovanni 36
38122 Trento (TN)
Italy

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

Ragupathy Venkat

Centre for Development Studies (CDS) India ( email )

Trivandrum 695 011, Kerala
India

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