Search

Our aim is to compare empirically the profitability of European cooperative and commercial banks in a low interest rate environment. We employ dynamic panel data methods on a data set of nearly 1000 banks from 11 European countries where both ownership structures compete on the same market. We observed different banking strategies during the 2009–2015 period, when market interest rates reached an all‐time low. Our analysis produced four main conclusions. First, we find that commercial banks maintain superior profitability over cooperative banks in an environment of low interest rates. Second, commercial banks unjustifiably decreased their loan loss provisioning in a low interest rate environment in order to maintain their profitability. This trend is not present in cooperative banks. Third, decreased provisioning is present mainly in smaller institutions. Fourth, cooperative banks are significantly more stable than commercial banks in terms of their Z‐score in a low interest rate environment. This finding is in line with existing findings during normal interest rates. In addition, the Z‐score of cooperative banks increased during the observation period, whereas the Z‐score of commercial banks remained stable. Our findings survive a battery of robustness checks. Our results also show differences in the strategies and priorities of both competing ownership types in a low interest rate environment: commercial banks focus on maintaining their profitability by decreasing loan loss provisions, whereas cooperative banks seek to increase their stability. Therefore, regulators pursuing stability in a low interest rate environment should focus on the credit risk management of small commercial banks. [ABSTRACT FROM AUTHOR]

In this paper, we contribute to the literature by examining the determinants of net interest margin (NIM) of European and US banks in a zero lower bound situation while controlling for important institutional design factors. We analyse a large sample of annual data on 629 European banks and 526 US during the 2011–2016 period, which also covers periods of zero and negative rates in many of the observed countries. We test three hypotheses and come to three main conclusions. First, NIM is significantly influenced by the different institutional designs of capital‐based (the UK and the US) and bank‐based financial markets (continental Europe). Second, there are differences in NIM caused by bank size. Finally, we show significant differences by bank type: savings banks, real estate and mortgage banks, and cooperative banks report consistently lower NIMs than commercial banks and bank holdings. Contrary to other researchers, we observe a negative relationship between NIM and the yield curve slope. [ABSTRACT FROM AUTHOR]