Meeting report
IWFSAS 2016: The Role of Cooperative Banks in Promoting Financial Stability and Sustainable Economic Development
Place: University of Victoria, Victoria
The International Research Center on Cooperative Finance (IRCCF) of HEC Montreal, the Peter B. Gustavson School of Business, the Department of Economics and the European Union Centre of Excellence (EUCE) at the University of Victoria organised in Victoria, BC, on August 26-27, 2016 the first International Workshop on Financial System Architecture and Stability (IWFSAS).
The IWFSAS aims at providing a forum for academic researchers and policy makers to discuss issues related to the structure and design of financial systems and their impact on growth and financial stability, both nationally and globally.
The 2016 workshop has gathered around thirty academic researchers and experts from Canada, the United States and Europe on the topic of the role of Cooperative Banks in Promoting Financial Stability and Sustainable Economic Development. The topic was covered in six sessions:
- Business Models and Market Structures in Banking
- Regulation and Risk Taking in Cooperative Banking
- Finance, Growth, Inclusion and Stability
- Public panel: The Future of the Cooperative Banking Sector
- Managing Cooperative Financial Institutions
- Avoiding and Resolving Banking Crises
The program and the list of papers presented are available at http://www.uvic.ca/iwfsas2016
Professor Rym Ayadi presented on August 26 a paper titled «Which business models exist in European Banking? ». She was also panelist the same day in the session on the future of the cooperative banking sector.
Presentation of Pr. Rym Ayadi in the session on “Business Models and Market Structures in Banking”
The paper titled « Which business models exist in European Banking ? » of Pr. Rym Ayadi analyses the business models of banks in Europe in a context of constant evolution of market structures and regulation, in a view to understand the nature of the risks borne by each business model and the business model contribution to systemic risk. The findings show that along the business cycle, financial cooperatives have similar performance as the other business models while contributing less to the accumulation of risks. They are thus more resilient to extreme shocks and less threatening to financial stability. The study concludes that a diversified system is apparently more resilient than a system that converges to a unique business model.
Panel on the future of the cooperative banking sector
A panel session open to the public was held at 3:30 pm on August 26 on the future of the cooperative sector. Paul Schure, associate professor, Economics Department of the University of Victoria, moderated the discussions.
Following is the composition of this panel of five experts:
- Rym Ayadi, Professor and Director of the IRCCF, HEC Montréal,
- Frank Chong, Acting superintendent of financial institutions and acting CEO of the Credit Union Deposit Insurance Corporation Financial Institutions Commission (FICOM),
- Tracy Redies, director of BC Hydro and former CEO of Coast Capital Savings,
- James A. Wilcox, finance professor at the Haas School of Business, University of California at Berkeley,
- Don Wright, president and CEO, Central 1 Credit Union, British Columbia.
Rym Ayadi presented some of the results of her research on cooperative banks, business models and financial stability. She underscored that cooperative banks are stakeholder value institutions that maximize profits for their members while pursuing other social objectives, whereas shareholder valuebanks maximize their return on own funds. Her findings show that cooperative banks are less risky (w.r.t the distance-to-default) than the other banks, except public banks. These conclusions are counter to the regulatory assessment by the Tier 1 capital ratios. Thus, this Basel capital ratio has to be supplemented by the leverage ratio. Finally, tail-loss estimates imply that cooperative banks in Europe have been more resilient throughout the financial crisis of 2007-2009 and the subsequent European economic crisis.
The remarks of Frank Chong featured the need for a more active engagement of member-owners of credit unions and to bolster accountability to them by an adequate disclosure of information. Tracy Redies, in turn, emphasized the history of innovation by credit unions to their members and their size differential vis-à-vis Canadian banks. She advocated for measures to guarantee their survival as a vital component of the financial services sector in the current context that favors banks because of economies of scale. James A. Wilcox echoed the concern about economies of scale and identified these as the primary motivation of mergers in the US credit unions sector, the aim of which is to remain competitive in the banking industry. In the same vein as Tracy Redies, Don Wright points out that, contrary to banks, credit unions are socially conscious and favor relationship banking. Their future is full of challenges, namely the continued involvement of member-owners as their size increase and, since 2008, a one-size-fits-all regulatory approach that disregards proportionality issues.
Following the remarks of the members of the panel, the debate generated by questions from the public was on the size of credit unions and the need for them to cooperate via common platforms in order to improve services to their members. As well, discussions were about fostering member activism, the improvement of the regulatory framework and the implications of the fundamental evolutions induced by Fintech initiatives, in particular crowdfunding.
Other key events of the IWFSAS 2016
Keynote address on finance, growth, inclusion and stability
Thorsten Beck was the keynote speaker at IWFSAS 2016.
Dr. Beck is professor of banking and finance at Cass Business School in London. He is also a research fellow of the Centre for Economic Policy Research (CEPR) and the CESifo. He has also worked as consultant for – among others – the European Central Bank, the Bank of International Settlements and the International Monetary Fund.
His address focused on the links between finance on the one hand, and growth, inclusion and stability on the other hand. He put forth empirical results on the conditions for a positive correlation between them.
Best Paper Award of the IRCCF
The Committee of the International Research Centre on Cooperative Finance (IRCCF) has granted its Best Paper Award to Hongyu Xiao (Ph.D. student in applied economics at the University of Pennsylvania), for the paper titled « Local vs National: Regulatory and Cultural Entry Barriers in the Retail Banking Industry », co-authored with Hector Perez-Saiz (Bank of Canada).
The Committee of the IRCCF was made up of Barbara Casu (Cass Business School, London), Giovanni Ferri (LUMSA University, Rome), Barry Quinn (Queen’s University of Belfast, UK), Benoit Tremblay (HEC Montréal), Rym Ayadi and Michel Keoula of the IRCCF team.
The paper of Perez-Saiz and Xiao is an empirical study of factors that influence the competitiveness and geographic presence of credit unions and large national banks in the dual Canadian banking system. The database includes branch location data, 2006 census data for demographic variables and census subdivisions (to define markets), of which small rural isolated subdivisions are selected. The econometric model is an ordered probit applied to the oligopolistic banking market of Canada. The global predictive power of the method is good, which allows some policy experiments. The main conclusions are that credit unions can have significant advantages in less attractive markets whereas national banks can have significant advantages in more attractive markets. As well, cultural entry barriers should factor into the analysis of the expansion of credit unions across provinces and the federal law of 2012 aiming to foster that expansion will not significantly change the competition in the Canadian banking sector.
Best Paper Award of the CSSI
Giorgio Caselli (University of Cranfield) won the Best Paper Award of the Centre for Social and Sustainable Innovation (CSSI) of the University of Victoria’s Peter B. Gustavson School of Business, for his paper titled : « Risk-Taking Channel of Monetary Transmission and Financial Stability: What Role for Stakeholder Banks? », co-authored with Catarina Figueira (University of Cranfield).
The composition of the Committee of the CSSI was the following: José Martin Berropside (Board of Governors of the Federal Reserve), Martin Cihak (International Monetary Fund), Claudia Gerardone (Essex Business School) et Nadia Massoud (Melbourne Business School).