The co-operative banks subscribe to the Commission’s intentions for fostering prudent banking and take a stand against any and all forms of irresponsible, high risk banking.
However, it should be mentioned that there is no such thing as risk-free banking. The risk of default by the debtor is inherent in lending. Matching loans to debtors and deposits from creditors, leads to liquidity risks. Furthermore, a bank is constantly exposed to interest rate risk. All these risks arise directly out of the provision of financial services to customers and the real economy. The management of such risks constitutes the core activity of banking.
Co-operative banks are primarily member customer-driven banks. All their activities are principally geared to serving their members. To be able to create member value, cooperative banks strive for a stable and sustainable profit to facilitate this process in the long run. They have a very broad customer base in Europe of more than 181 million customers, mainly focused on private individuals, SMEs, and communities.
Co-operative banks weathered the financial crisis relatively well. Representing about 20% of the financial services rendered in the European Union, its part in write-offs after the outbreak of the financial crisis is only 7%. This is due to their prudence in dealing with risks and the cooperative ownership and governance model that keep them close to their members and customers.
Diversity in EU banking Sector a prerequisite for stability
The members of the EACB are seriously concerned about the fact that any questions raised by the Liikanen group so far focus on the “EU banking sector” without any differentiation. There are important differences regarding business concepts and company models, which result in important nuances. This diversity and the specificities within the EU banking sectors should be taken into account in order to maintain the integrity of the internal market.
In particular, we would like to stress that co-operative banks, as a general rule, mastered the crisis much better than other banking groups1. There would have been no crisis if it were for co-operative banks.
Therefore, a “one-size-fits-all/one-model-for-all” approach cannot be the solution, since the structure of the EU banking sector is diverse and not homogenous. As reflected in a CEPS study 2: ‘... there are economic, systemic and welfare benefits derived from a successful cooperative sector in the banking sectors in Europe. A financial system populated by a diversity of ownership and governance structures, and alternative business models, is likely to be more competitive, systemically less risk and conducive to more regional growth than populated by a single model. 3
References:
1)CEPS (2010), ’Investigating Diversity in the Banking Sector in Europe. Brussels. p. 117 ‘relative stability could be attributed to the inherently low profitability in good times and the use of consumer surplus as a buffer in hard times to keep proceeds relatively fixed over time’ …’ the better loan quality and lower asset risk of cooperative banks is a source of stability’.
2)CEPS (2010), p. 148-149
3)CEPS (2010), p. vi