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Cooperative Banks and Financial Stability

Author

Listed:
  • Mr. Martin Cihak
  • Mr. Heiko Hesse
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.

Suggested Citation

  • Mr. Martin Cihak & Mr. Heiko Hesse, 2007. "Cooperative Banks and Financial Stability," IMF Working Papers 2007/002, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2007/002
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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