Finance

'Cooperative Banks Enhance Stability of Financial System'

March 2, 2015

The concern of the cooperative banks across Europe is: how does the European Central Bank (ECB) see us? Can we maintain our unique character?

Image: © Nationale Beeldbank

The banks fear that the ECB, the banking supervisor in the euro zone since November last year, aims to harmonize their sector. Uniformity and a level playing field make supervision easier. And cooperatives, with members who are not necessarily bankers, have a different way of decision-making than listed banks.

To Hans Groeneveld the answer is clear. In the oration he delivered last Friday as Professor of Cooperative Financial Services at TIAS School for Business and Society in Tilburg, the Senior Vice President of Cooperative and Governance Affairs at Rabobank argues on behalf of cooperative banks. "It would be wise to keep the diversity of the European banking system."

 It is not surprising that you make this plea. After all, you work at Rabobank.

"That is true, but as a professor I have to work objectively. I arrive at conclusions on the basis of facts."

You have studied cooperative banks. What are your main conclusions?

“Cooperative banks make the financial system more stable. This type of bank is very different to listed banks. Cooperative banks can, of course, also fail, but my research clearly shows that they, on the whole, are good for the financial system."

What is your advice for the ECB?

"Cooperative banks do not need any special treatment. But it would be good if the ECB took the unique nature of cooperative banks into account. Yes, I understand that the ECB is aiming for harmonization and prefers banks to make quick decisions. But at the same time, I say: be careful. Again, cooperative banks make the system more stable."

 What other dangers lie in wait?

"That the requirements are raised so much that the particular way of command and control, i.e. the governance, cannot be maintained. This is especially true in small cooperative institutions in Italy, Germany, and Austria. If such a bank has fifty employees, then having two or three people to monitor compliance (with rules, ed.) is a lot. This does not play a role at Rabobank. But I think that concerning governance there should be a certain degree of freedom, so that the strength of the cooperative remains. As long as it all tallies up in the end."

 What demonstrates the strength of the cooperative?

"In times of recession or crisis it has been shown that cooperative banks reduce lending less than listed banks. In 2012, lending by cooperative banks in Europe grew by an average of 1.3%. However, the banking sector as a whole reduced its loan portfolio by 1.1%. In 2013, the difference was even greater: the cooperative banks showed on average a slight decrease of 0.2%, while the banking sector as a whole saw a reduction of 4.1%.

"The so-called Z-score, a measure of stability, also shows that the cooperative financial sector has a higher stability than the banking sector as a whole. In the crisis years of 2008, 2009, and 2010, the difference increased sharply in favor of the cooperative banks."

This article is also published in 'Het Financieele Dagblad' of February 16, 2015. We have permission to publish this article on our website. Copyright is the article is of the 'Het Financieele Dagblad'.

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