## Cooperative Banks and Financial Stability

_IMF Working Papers, January 1, 2007_

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## Bibliographic details
- Authors: Martin Cihak, Heiko Hesse
- Published: January 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865660.001

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### Summary and main findings
- Cooperative banks are an important, and growing, part of many financial systems.
- The paper empirically analyzes the role of cooperative banks in financial stability.
- Primary finding: cooperative banks are more stable than commercial banks.
- Stability advantage driven by lower volatility of cooperative banks' returns, which more than offsets their lower profitability and capitalization.
- Likely mechanism: cooperative banks' ability to use customer surplus as a cushion in weaker periods.
- System-level nuance: in systems with a high presence of cooperative banks, weak commercial banks are less stable than they would be otherwise.
- Overall impact of a higher cooperative presence on bank stability is positive on average but insignificant in some specifications.

### Mechanisms and explanations
- Lower return volatility at cooperative banks is the central quantitative mechanism explaining higher stability versus commercial banks.
- Lower profitability and lower capitalization at cooperative banks do not outweigh the stabilizing effect of lower return volatility.
- Customer surplus functions as an internal buffer for cooperative banks during weak periods.

### System-level interactions and heterogeneity
- Presence of cooperative banks affects commercial banks: weak commercial banks become less stable in systems with a high cooperative presence.
- Aggregate effect of cooperative-bank presence on overall bank stability: generally positive but can be statistically insignificant depending on specification.

### Publication and metadata
- Authors: Martin Cihak, Heiko Hesse
- Publication date: January 1, 2007
- Series: IMF Working Papers
- Working Paper No.: 2007/002
- Volume: 2007
- Issue: 002
- Pages: 36
- DOI: https://doi.org/10.5089/9781451865660.001
- Stock No: WPIEA2007002
- ISBN: 9781451865660
- ISSN: 1018-5941

*IMF Working Paper — Cooperative Banks and Financial Stability by Martin Cihak and Heiko Hesse (January 1, 2007).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/cooperative-banks-and-financial-stability-20141_