Contemporary Trends in European Cooperative Banking : Sustainability, Governance, Digital Transformation, and Health Crisis Response

The cooperative banks’ business model is unique in the financial market. It is featured by democratic foundations ( one-head-one-vote principle), proximity to the members and the community they serve, limited profit-seeking nature, and prudent management. However, these principles are applied in a variety of organisational structures and economic and regulatory contexts, making cooperative banks significantly different from one country to another. This book expands existing knowledge on the European cooperative banking sector by analysing recent trends affecting cooperative banks. Namely, the book discusses the role of cooperative banks in the policy and societal movement towards sustainability, including in adopting sustainable finance practices. It explores the digital transformation journey of cooperative banks and the impact of the consolidation of Fintech players in the financial services markets. It further showcases the need to evolve the cooperative banks’ governancestructures and processes in order to foster (and in some cases restore) democracy and transparency in the decision-making. Lastly, the book debates the specific role of cooperative banks in the economic crisis that has followed the unfolding of the Covid-19 pandemic vis-à-vis their members and the communities they serve. Of interest to scholars, professors, students, and practitioners of banking and finance, this book will build on the existing research and explore the latest trends in the space. Preface 5 References 8 Contents 9 Notes on Contributors 16 List of Figures 20 List of Tables 21 1 The Co-evolutionary Nature of European Cooperative Banks 22 1.1 Introduction 22 1.2 Cooperative Banks and Their Founding Principles 28 La Raison d’être of the First Cooperative Banks: A Historical Heritage 28 Cooperative Banks in Europe and Co-evolutionary Theory 28 Strategic Proactivity and Relaxing of Cooperative Founding Principles 28 1.3 The Macroeconomic Dimension of Cooperative Banks 38 1.4 Sustainability as Major Trend of Development for European Cooperative Banks 40 1.5 Conclusions 43 References 44 2 The Founding Role of Cooperative Banking Within the European Variety of Capitalism 49 2.1 Introduction 49 2.2 Cooperative Banks’ Institutional Place Within Europe’s Value System 50 Cooperative Banks, Asymmetric Information, and Market Failures 50 Cooperative Banks, Tacit Knowledge, and Learning by Doing 50 Cooperative Banks as Institutions 50 Cooperative Banks and the Theory of the Firm 50 2.3 Key Trends in the Evolution of European Cooperative Banks: A Review of the Literature 54 General Characteristics of European Cooperative Banks 54 European Cooperative Banking Groups (ECBG) 54 Cooperative Banks and Financial Crisis 54 Cooperative Banks at National Level in Europe 54 A Comparative Analysis of Cooperative Banks and Other Typologies of Banking Ownership in Europe 54 Digitalization of European Cooperative Banks 54 Institutions, Laws, and Cooperative Banks 54 2.4 Cooperative Banks and the Green Transition in Europe 70 2.5 Conclusions 71 References 71 3 Cooperative Banks and EU Regulation: A General Assessment 75 3.1 Introduction 75 3.2 Peculiarities of Cooperative Banks and Implications for an Optimal Regulation 77 3.3 Financial Regulation as a Collective Good: Considerations for Cooperative Banks 80 3.4 Bank Re-regulation as a Response to the 2007–2009 Crisis 82 3.5 Top-Down Regulation (and the Lack of Self-Regulation) 85 3.6 Proportionality in the Application of Single Supervisory Mechanism: What Does It Mean? 86 3.7 Practical Concerns and Discussion 89 References 90 4 How Can Members Contribute More to Cooperative Life and Decision Processes? 94 4.1 Introduction 94 4.2 Diversity of the Members and Diversity of Commitment 96 Nature of Benefits Offered to Members 96 Upgrading Member Contributions 96 4.3 For a More Effective Contribution of Board and Members to Strategic Decisions 103 Board Members’ Level of Contribution 103 Independence of Boards and Board Members in CBs: Myth and Reality 103 4.4 Conclusion 111 References 112 5 Decentralization of Decisions and Governance of Risk in Cooperative Contexts 115 5.1 Introduction 115 5.2 Governance of Risks and Decentralization: A Literature Review 117 The Specificities of Cooperative Bank Governance Effects on Risk Setting 117 The Importance of Soft Privileged Information for Managing Credit Risks 117 The Importance of Employee Selection and Socialization to Cooperative Values to Manage Risks 117 5.3 Case Study of CB Bank: Data Collection and Context 121 5.4 Case Study of CB Bank Findings: Strong Relationships Between Values, Decentralization Practices and Risk Management 125 Soft Information Use as an Expression of Cooperative Values 125 Empowerment, Trust and Risk Sharing as Powerful Socialization Practices Mitigating Risks 125 The Role of Values in Handling Credit Risks: Perceived Specificity of Cooperative Banks 125 5.5 Discussion and Conclusion 131 Appendix: Data description—Interviews 133 References 134 6 When Cooperative Banks Are Dealing with One Cooperative Fintech Firm: What Can We Learn from the Sociology of Markets? 136 6.1 Introduction 137 6.2 When Social and Strategic Action Fields Intertwine in Finance 138 Markets as Fields of Social Action 138 Finance as a Strategic Action Field 138 6.3 A Research Based on a Qualitative Approach 141 6.4 Birth, Growth, and Transformation of France Barter (FB): A Cooperative Fintech Firm 142 The Origin of the Project 142 The Governance of FB 142 Business-Oriented Platform 142 Facilitating a Business Ecosystem 142 A Business Project with Human and Territorial Dimensions 142 Sources of Income and Value Creation 142 The Collaboration Project with Cooperative Banks 142 The End of FB as a Cooperative 142 6.5 When Sharing Cooperative Values Is Not Enough 151 6.6 Conclusion 154 Appendix: Table of individual interviews 156 Bibliography 156 7 The Cooperative Difference in the Management Styles and Objectives: Phantom Effect of Credit Cooperative 159 7.1 Introduction 159 7.2 Theoretical Specificity of the Credit Unions 161 7.3 Real Distinction Between Traditional Banking and Credit Unions 164 7.4 Traditional Communication Deficit 169 7.5 Social Accounting as the New Kirlian Camera for Cooperative Banking 174 7.6 Conclusions 176 References 178 8 European Cooperative Banks and Sustainability 181 8.1 Introduction and Perimeter of Analysis 181 The EU in the Context of the Paris Agreement and Sustainable Development Goals (SDG) 181 Sustainability and Sustainable Finance 181 Sustainability and Cooperative Values: Preliminary Considerations 181 8.2 European Cooperative Banks and Sustainable Finance: Current Approaches 191 Cooperative Banks and Sustainability: Origins and Developments 191 Cooperative Banks Current Practices in Sustainable Finance 191 8.3 Challenges and Opportunities for Cooperative Banks to Deliver on Sustainability 197 Main Impact of Regulation in Fostering Sustainability 197 Supporting Local Development and Climate Goals: Opportunities and Challenges for Cooperative Banks 197 Cooperative Banks and Social Goals: Is This a Specific Pillar of the Cooperative Banks’ Contribution to Sustainability? 197 8.4 Conclusions 206 References 207 9 How Do Cooperative Banks Consider Climate Risk and Climate Change? 209 9.1 Introduction 209 9.2 Climate-Related Risk Factors 211 9.3 Impact of Climate Change on the Banking Sector 215 Climate-Related Financial Risks for Banks 215 Evidence on the Impact of Climate-Related Risk Factors on the Banking Sector 215 9.4 Cooperative Banks and Climate Change 218 Impact of Climate Change on the Cooperative Banking Sector 218 Relationship Banking and Soft Information 218 Branch Networks and Decentralised Decision-Making 218 Bank Capital and Lending Supply 218 Market Shares in Loans to the Agricultural Sector 218 Climate-Related Management Practices of European Cooperative Banks 218 Adapting Existing Governance Structures 218 Reducing Direct Carbon Footprint 218 Reducing the Carbon Footprint of Financing and Investment Activities 218 Developing Analytical Tools for Assessing Physical Risk Exposure 218 Estimating Climate-Related Financial Risks with Scenario Analysis 218 9.5 Concluding Remarks 235 References 236 10 Profitability and Digitalisation: The Effects on Cooperative Banks and Their Governance 240 10.1 Introduction 240 10.2 Profitability of Cooperative Banks 241 10.3 Profitability and Group Governance 247 10.4 Digitalisation and Banks 250 Characteristics of Digitalisation 250 The Effects of Digitalisation on Banks’ Activities 250 The Effects of Digitalisation on Cooperative Banks’ and Cooperative Banking Groups’ Profitability 250 References 256 11 How Do Cooperative Banks Build Their Own Proximity Type in the Social Media 258 11.1 Introduction 258 11.2 Defining Proximity and Identifying Its Different Facets 260 Defining Proximity 260 Identifying the Different Proximity Types 260 Proximity Based on the Frequency of Interactions 260 Proximity Based on a Perceived Similarity 260 Proximity Based on a Perceived Enrichment 260 Proximity Based on a Perceived Social Recognition 260 11.3 The Challenge of Identity and Proximity of Cooperative Banks in the Digital Landscape 262 11.4 Explorative Study: Three Cooperative Banks’ Communications on Instagram 263 Introduction to the Study 263 Methodology 263 Analysis 263 Crédit Agricole @creditagricole 263 Bred—Banque Populaire @bredbp 263 Crédit Mutuel @creditmutuel 263 Results 263 Emerging Status of the Three Cooperative Banks Through Their Instagram Communication 263 Emerging Relationship Style of the Three Cooperative Banks Through Their Instagram Communication 263 The Types of Proximity for Cooperative Banks 263 11.5 Conclusion 276 References 277 12 Conclusions 281 Index 284 The cooperative banks business model is unique in the financial market. It is featured by democratic foundations (one-head-one-vote principle), proximity to the members and the community they serve, limited profit-seeking nature, and prudent management. However, these principles are applied in a variety of organisational structures and economic and regulatory contexts, making cooperative banks significantly different from one country to another. This book expands existing knowledge on the European cooperative banking sector by analysing recent trends affecting cooperative banks. Namely, the book discusses the role of cooperative banks in the policy and societal movement towards sustainability, including in adopting sustainable finance practices. It explores the digital transformation journey of cooperative banks and the impact of the consolidation of Fintech players in the financial services markets. It further showcases the need to evolve the cooperative banks governance structures and processes in order to foster (and in some cases restore) democracy and transparency in the decision-making. Lastly, the book debates the specific role of cooperative banks in the economic crisis that has followed the unfolding of the Covid-19 pandemic vis-a-vis their members and the communities they serve. Of interest to scholars, professors, students, and practitioners of banking and finance, this book will build on the existing research and explore the latest trends in the space