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© 2008 International Monetary Fund
WP/08/74
IMF Working Paper
European Department
The Reform of Italian Cooperative Banks: Discussion of Proposals
Prepared by Eva Gutiérrez*
Authorized for distribution by James Daniel
March 2008
Abstract
This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author and are published to elicit comments and to further debate.
This paper argues that the governance framework of cooperative banks may hamper raising capital, particularly at time of distress, complicating the bank resolution process―especially for large banks―and may not provide adequate incentives to control banks’ management. Reforms should preserve the positive characteristics that make cooperative banks a valuable addition to the Italian financial system, while providing enough flexibility and incentives for banks to adopt a suitable governance model. Our empirical analysis suggests that cooperative banks may enjoy a higher degree of monopoly power than commercial banks. Thus, regulations and the enforcement of antitrust policies should ensure a level playing field.
JEL Classification Numbers: G21, P13.
Keywords: Cooperative Banks, bank resolution, competition.
Author’s E-Mail Address: egutierrez@imf.com
Contents
I. Introduction
II. The Italian Cooperative Banking Sector
A. Structure of the Sector
B. Sector Performance
III. Discussion of Governance Reform Proposals
A. The Case for Governance Reform
B. A Proposal for Reform
IV. Cooperative Banks And Competition
V. Conclusions
Tables
1. Cooperative Banking Sector in Selected European Countries
2. Main Features of Italian Cooperative Banks
3. Italian Banks Performance Indicators
4. Summary of Reform Proposals
5. Italian Banks Revenue Functions: Estimation Results
Box
1. Pros and Cons of Mandatory Conversion to Joint Stock Company
References
I want to thank Donato Masciandaro, Steveen Seelig, Wyn Fonteyne, James Daniel, and Alessandro Giustiniani for their useful comments, as well as participants in seminars in Washington D.C. and Rome. Any remaining mistakes are my own. Zhaogan Qiao provided invaluable research assistance.