Giorgio Caselli is a doctoral researcher at Cranfield University. His main research interests include: the intersection between management, banking and financial economics. Specifically, his work focuses on the role that ownership structure plays in the transmission of monetary policy via the risk decisions of financial intermediaries. Prior to starting his PhD, Giorgio worked as an analyst at Deloitte’s Global Financial Services Industry (GFSI).
Executive Summary :
This paper reconsiders the role of stakeholder banks in monetary economics by examining how bank ownership affects the transmission of monetary policy via the risk-taking channel. Theory suggests that a key determinant of firms’ risk taking is their ownership structure, which determines the extent to which multiple stakeholder claims find recognition alongside those by shareholders. By constructing a panel of commercial, cooperative and savings banks from 17 Western European countries over the 1999-2011 period, we find evidence that heterogeneity in ownership types accounts for a differential impact of monetary policy on intermediaries’ risk appetite. While this impact appears to be particularly strong for shareholder banks, our findings show that the effects of lower interest rates on systemic risk are dampened by the presence of stakeholder banks. A case in point are the results for the pre-crisis period, during which commercial banks are found to shift their portfolios towards riskier structures more actively than cooperative and savings banks.
Taken together, the results suggest that omitting ownership structure may lead to incomplete conclusions about the implications of monetary policy for bank risk taking. From a policy perspective, this research indicates that attempts to regulate the European banking sector should not impair the ‘biodiversity’ of its organisational forms. Our evidence on the contribution of a mixed banking system to financial stability suggests that not only is such a system worth preserving, but it should be promoted through the adoption of effective regulations. On this front, it seems vital for policymakers to ensure that the specific features of stakeholder banks are not hindered by regulatory constraints aimed at and devised for shareholder banks. For this reason, our hope is that this contribution helps draw greater attention to the benefits arising from a biodiverse banking sector for the stability of the financial and economic system.