Profitability and Risk-Taking Among Cooperative Banks in the Eurozone

In Europe, the banking sector is mainly composed of commercial and cooperative banks. The cooperative banks are particular because they were historically founded to improve access to finance for their members and foster self-help, responsibility and solidarity. So, they can have different objective and behavior than commercial banks, especially during crisis. This paper uses a dynamic panel of 1670 cooperative banks in the euro area to investigate the effect of economic growth and economic liberalization on cooperative banks' profitability and risk-taking from 1999 to 2015. We provide evidence that cooperative banks have relatively higher financial stability with relatively less risk-taking than other banks. In addition, smallest cooperative banks are less efficient and more exposed to risk than largest banks. Deepen analysis shows that before the 2008 financial crisis, economic growth and liberalization boost banking profitability and reduce insolvency and lending risks of cooperative banks. However, after this crisis, the scanty economic growth in the euro area weakens banking profitability and increases insolvency and lending risks. Moreover, cooperative banks in countries without troika bailouts manage better their risk-taking than cooperative banks operating in countries with troika assistance. Finally, German cooperative banks' profitability and risk-taking are counter-cycle.