AUTHORPrevious 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 nonmember depositors and borrowers, who play a key role in determining cooperative banks' interest rates.

This paper contributes to the literature on social capital and financial institutions by analysing the relationship between the market share of Italian credit cooperative banks (CCBs) in 2003–2011 at the province level and some measures of trust and of membership in formal associations (networks). According to anecdotal evidence, cooperatives require high levels of social capital to be successful, but theoretical predictions are ambiguous, and there is still little empirical evidence. We find that the social capital and market shares of Italian CCBs are related and that the links are stronger when banks lend to small enterprises. When the types of associations are separated according to their particularistic or universalistic nature, the results show that it is especially the latter that matters. We also find that the link between social capital and CCBs is due more to their cooperative structures than to their local orientations.

No abstract

No abstract

The governance of cooperative banks is arguably so distinctive that it cannot be properly captured by standard economic models. One of the problems that arises in the assessment of the assumed democratic governance in such banks refers to the members' commitment to the banks. This paper considers the fact that it is not always clear whether cooperative banks' members have the proper incentives to actively participate in making decisions that relate to bank strategies and policies. To shed light on this problem, this paper provides an improved framework of governance based on some seminal concepts by Albert O. Hirschman (1970), such as voice, exit and loyalty. Given the challenges that cooperative banks are currently facing, the arguments discussed in this paper should help illuminate the kind of reforms that such banks are expected to pursue in the coming years. Their governance model needs to be updated in practice to retain its specific features; otherwise, it may end up mirroring that of standard forprofit banks.