Davide S. Mare is a Research Economist at the World Bank's Development Research Group leading the update of the World Bank - Bank Regulation and Supervision survey. He holds a PhD in Banking and Finance from The University of Rome Tor Vergata. His main research interests lie in banking focusing on bankruptcy prediction, credit risk, competition and efficiency. Prior to joining the World Bank, Davide was a Lecturer (Assistant Professor) in Business Economics at the University of Edinburgh Business School and a financial consultant for large European banks. Davide is an expert in the assessment of the individual bank risk of default and in applied financial valuation.
Executive Summary :
There is wide agreement that neglecting key symptoms of the Global Financial Crisis (GFC) led to the occurrence of this market havoc. Yet the discussion on how to design key policy measures has not properly addressed the contribution of the diversity of business models. The presence of credit institutions with mutual ends requires a more thorough treatment of their specificities. As a consequence, we investigate the relationship between competition and financial stability in European cooperative banking over the period 1999 through 2013. Moreover, we include in the analysis the impact of assets diversification and liabilities diversification on the risk preferences of these credit institutions. Our results show that market power increases cooperative banks’ solvency and that asset diversification and liabilities diversification are positively related with bank soundness. On the contrary, cooperative banks that diversify the deposit sources are less stable.