European co-op banks outperform rivals, new survey of sector reveals

The study finds that mutual players provide stability to the sector but warns regulation could lead to a lack of diversity in the system

European co-operative banks have outperformed the rest of the banking sector in terms of return on equity, according to research by TIAS School for Business and Society.

Since 2011 co-operative banks in Europe have maintained assets stable while those of all other banks shrunk by almost 2%.

The study, which was carried out with support from the European Association of Co-operative Banks (EACB), examines the performance of 18 co-operative banks in 13 European countries. Co-operative banking groups across 13 European countries have increased their membership base by 1.6 million to almost 80 million in 2015.

The report also reveals that almost one in five inhabitants of the EU countries under review is currently a member of a co-operative bank.

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In addition, capital position of co-operative banks continued to improve. The average Tier 1 capital ratio of co-operative banks and entire banking sectors increased in 2015 by 1 percentage point to 14.5 and 14.3, respectively.

As financial institutions that engage in fewer and more stable business, co-op banks provide stability. The study also points out that regulatory forces are pushing banks in the same direction and/or prompt them to make similar choices, even though they have different ownership structures. The move could have negative impacts on financial stability, argues the report, due to a lack of diversity within the banking system.

In 2015, the Single Resolution Mechanism and the Single Supervisory Mechanism were set up within the Eurozone with the aim of harmonising supervision. However, the research highlights that rising regulatory costs are complicating the internal capital-generation capacity of co-operative banks, particularly smaller and medium-sized co-operative banks.

Another finding of the report is that the governance and capital structure of individual co-operative banking groups vary greatly according to size. For this reason, the analysis claims that co-operative banks should benefit from a differentiate regulatory and supervisory approach.

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