Cooperative Banks and Financial Stability

38 Pages Posted: 12 Jan 2007

See all articles by Heiko Hesse

Heiko Hesse

International Monetary Fund (IMF)

Martin Čihák

International Monetary Fund (IMF)

Date Written: January 2007

Abstract

Cooperative banks are an important, and growing, part of many financial systems. This paper empirically analyzes the role of cooperative banks in financial stability. Contrary to some suggestions in the literature, we find that cooperative banks are more stable than commercial banks. This finding is due to the lower volatility of the cooperative banks' returns, which more than offsets their lower profitability and capitalization. This is most likely due to cooperative banks' ability to use customer surplus as a cushion in weaker periods. We also find that in systems with a high presence of cooperative banks, weak commercial banks are less stable than they would be otherwise. The overall impact of a higher cooperative presence on bank stability is positive on average but insignificant in some specifications.

Keywords: financial sector stability, cooperative banks, commercial banks, savings banks

JEL Classification: G21, P13

Suggested Citation

Hesse, Heiko and Cihak, Martin, Cooperative Banks and Financial Stability (January 2007). IMF Working Paper No. 07/02. Available at SSRN: https://ssrn.com/abstract=956767

Heiko Hesse

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Martin Cihak (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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