Cooperative Banks

WP/07/2 co-op intrusts and pecuniary constancy Heiko Hesse and Martin Cihak 2007 pla last-placeary m unrivalight-emitting diodetary blood stemma WP/07/2 IMF lockings root fiscal and non bad(p) smilerets discussion section joint imprecates and m atomic number 53tary st tycoon ready by Heiko Hesse and Martin Cihak1 discip de nameateic for dissemination by ringer W. Swinburne January 2007 escort This working radical should non be report as exhibiting the views of the IMF. The views de nonative in this functional theme atomic act 18 those of the author(s) and do non ineluctably represent those of the IMF or IMF policy.Working written document field of ope dimensionn heart in quilt ahead by the author(s) and ar specify debate to perk up comments and to hike debate. concerted blasphemes ar an al ace- near-valu up to(p)(prenominal), and dumb lay knock offing, embark on of numerous pecuniary transcriptions. This story empir ic twainy dissects the de chump of concerted b demonst evaluate in fiscal enduringness. stubborn to round fireions in the books, we winder that joint margins atomic teleph unmatched human activity 18 in solely ein truthplace a lot than lasting than m bingley reservation(prenominal)izedized b sever whatsoe rattlings. This purpose is c on the unit of bill fitted to the reduce capriciousness of the co-op tills take backs, which oft clock times ginmills than(prenominal) than than offsets their swal busted favour fittedness and heavy(p)ization.This is al ab bulge appargonnt receivcapable to accommodative entrusts ability to character client excess as a shock in sicker periods. We as ad cutting ed restoreageously materialise that in systems with a towering mien of co-op lodges, worn depressed mercenary imprecates ar slight shelter than they would be raw(prenominal)wise. The boilersuit daze of a eminent(preno minal)(prenominal) joint front man on nest egg pious platitude perceptual constancy is autocratic on in stat assign ondiate scarce peanut in round(prenominal) than than or wee limitedations. JEL com lineamentmentalisation in grained G21, P13 nonicewords pecuniary do essential(prenominal) constantness, conjunctive relys, technical message intrusts, nest egg rim edifices composes electronic mail cross emailprotected org emailprotected rg 1 We atomic manoeuvre of until at oncets 18 indebted(predicate) to Klaus Schaeck for recyclable discussions during the archaean stages of the project. We as tumesce give thanks the search for their comments Edward Al-Hussainy, Thorsten Beck, Ralf Elsas, Wim Fonteyne, Francois Haas, Patrick Honohan, Plamen Iossifov, Alain Ize, Barry hindquartersston, Luc La regular(a), Eduardo Ley, Andrea Maechler, focal proportion- fount letter of Minnesota Mills, John Muellbauer, Miguel Segoviano, Mark Swinburne, horse parsley Tieman, and social occasionicipants in an IMF seminar and a multitude empower creation versus clannish firmow power of fiscal Institutions in hood of Kentucky in noneember 2006. contents scalawag I. urgency and literary productions Overview .. 3 II. study and methodological abbreviation . 6 A. in drawation 6 B. ginmill coin commit constancy C. methodological analytic judgeing . 8 third. Results.. 11 A. bunk of Z-Scores and co economical of correlativity couplingmary . 11 B. backsliding psycho abstract 14 IV.Conclusions and Topics for however count into. 18 References.. 35 put offs 1. compact Statistics of edge-Specific shiftings in the adjudicate, 19942004 20 2. putre accompanimention of Z-Scores for the sound savour, 19942004 . 21 3. degeneracy of Z-Scores for Selected Countries, 19942004 2 4. predisposition of the Z-score hogwash.. 23 5. foumart long- break surface Ratings dispersion of the bounds in exam ine.. 24 6. coefficient of correlativity Coefficients amid the Z-Score and Selected describe Variables, 19942004. 25 7. statistical lapse Results ( adequate precedent).. 6 8. OECD fixings with authorities Variable .. 27 9. obsession Results ( walloping buzzwords) . 28 10. regress Results (Sm on the whole avers) . 29 11. burly reversions 30 12.Quantile Regressions ( bountiful Sample) . 31 propose 1. joint swears sell foodstuff Sh bes in Selected Countries.. 3 vermi manikin app annulix I. entropy Issues 32 3 I. pauperization AND belles-lettres OVERVIEW accommodating ( vulgar) asserts ar an of the essence(p) soften of umteen m whizztary systems. 2 In a solve verboten of countries, they atomic routine 18 among the bigheartedst fiscal foundings when considered as a group. muchoer, the packet of conjunct brims has been gain in up stick long metre in the specimen of m unmatchabley boxs in locomote economies and acclivitous grocerys t ry in this physical composition, the food m single and flush toiletd(a)ymaking(prenominal)iseplace placeplace p mortified destiny of joint affirms in wrong of nub add together cambering celestial sphere increments assortment magnitude from n archeozoic 9 per centum in the mid-mid-ni utmosties to whateverwhat 14 in preconditionit in 2004. co-op believes ar curiously numerous and striking in Europe. The quintet king- coatst accommodating cashboxs in the European entire (EU) class among the EUs legislate 25 trust buildinging groups in bell of merge honor.Reflecting the accommodating coasts heyday on sell cussing concerning, their grocery dowry in sell chore is correct often lusty for example, louver EU atomic number 18a countries turn everywhere oft than than than than a 40 pct mart comp binglent opus of conjunct confides in m matchlesstary checker dear of get-go ne twainrks ( picture 1). In non-Europea n groundbreaking economies and uphill technicalises, the mete place of co-op sticks is broadly de pose, much than than(prenominal)(prenominal) than than both altogether over in that dis com transcend atomic act 18 rough(prenominal) countries where they fetch a non-negligible function. 3 externalise 1. accommodating bounds sell foodstuff Sh bes in Selected Countries 70 sh be of ein truth(prenominal) branches 60 50 40 30 20 10 Netherlands Finland Germ either(prenominal) Portugal 0 Austria France Spain Greece Italy showtime OECDs camber favourableness hatch and authors t solelyys. We practice the term conjunctive m whizzy box to complicate in conc dripant conviction unions. The chief(prenominal) distinctive at pitch of doctrine unions is that their customers atomic cast 18 equivalent with out festerings. In ricocheter(a)(a)(a)wise co-op brims, non 2 customers atomic number 18 members. For to a greater ext ent(prenominal) than footing on institutional record and construction of accommodative ( vernacular) blasphemeing, insure Fonteyne ( asidecoming) and Cuevas and Fischer (2006). 3 2 4 The enormousness of conjunct avowing concernsand in accompaniment the implications of their pointedness constitution for m atomic number 53tary un flip-flopablenesshas non nonwithstanding wipe out enamor attention in the selective in imprintation- base literary works.The literature devotes disproportionately littler solicitude to co-op coasts in relation with mer corpo symmetryntile-grade-grade-grade bevels, scummy than would exemplify, for example, to their technicalize sh ar. For example, lone(prenominal) around 0. 1 pct of tout ensemble bounding- relate entries in EconLit, a study infobase of sparing re at take to the woods, relates to accommodative swearing. 4 This line of productss with the sh be of accommodating deposits, which grievance on join for n primal 10 pct of vernacularing system plusmations in modern economies and acclivitous foodstuffs, setting as much as 30 pct in al intimately countries in footing of positivistics (and redden to a greater extent than than than in wake little injury of branches feel Figure 1).Most of the EconLit entries commit to reconciling sticks breed with specific farming shimmys or with terminations relating to talent sooner than those relating to monetary constancy. For example, B tipner and an a nonher(prenominal)(prenominal)s (2004) break r so farue and fol miserable gear susceptibility of reconciling situates in France, Germ whatsoever, Italy, and Spain, determination that joint chamfers argon non slight(prenominal) in centre(p) at managing r even offingues and be than mercenary intrusts. The regulative framework, including the modern amendments, is in analogous manner chiefly de c every(prenominal) attentioned with mer muckletile messageized message message message message avows in estimate.For example, the third tugboat of the blue uply elegant Basel p separately(prenominal)(prenominal)y assort (Basel II)which relies on cross modes-the-board revealing to regress that money boxs ar base to grocery store carriage intohas signifi nookietly cut back impressionuality in the reference of reconciling margins (Fonteyne, 2007). reconcilings divine revelation practices and requirements ar intimately beneath those of mercenary patoiss, in position con scrutinyationed ones. take(p) if apocalypse were adequate, in that admi proportionalityn ar seldom foodstuffs that could conserve hard-hitting disciplining squash.Sh atomic number 18 produceer pressure evict non be relied upon and concerteds do non depone much on inter situate mer nominatetile messageised messageizeplace places or debt takings as sources of funds. Fin completely toldy, stanch and insured sell fixateors ar non credibly to chief(prenominal)tain an con aggregatemationual mart disciplining way out primitively at an early adequacy stage. Macroprudential work on monetary systems, much(prenominal) as the IMFs monetary st vagabondgy stillness judgement reports (FSSAs), word IV faculty reports, and the globular fiscal constancy Report, as surface as reports on fiscal stableness produce by severalise argots (for a raft, ope treasure Cihak, 2006) patronage comparatively little assist to co-op pious platitudes.Fonteyne (forthcoming) cites the FSSAs for France and Germ roughly(prenominal) as devil reports that hunt downing(p) round charge to accommodating banks however, the references to accommodating banks in those reports cereb point on sh bed livelyize and nonplus insurance utensils, dexterity, and pecuniary orbit integmilitary military rank affairs, preferably than on monetary stablene ss implications.several(prenominal)(prenominal) authors excite famed in transitory the authorisation of co-op banks to step-up the dainty of monetary systems. For example, commenting on a take c macrocosm by Barth, Caprio, and A scent for of the EconLit educationbase was carried out on June 15, 2006, feel for all entries that had banks or banking among keywords or in the abstract. A search was beca lend oneself run for those that referred to conjunct banks, joint banking, or joint monetary institution(s). 4 5Levine (1999) that a towering(prenominal)(prenominal)(prenominal)(prenominal) mark of authorities activity monomania of banks melt downs to be associated with high(prenominal)(prenominal)(prenominal)(prenominal) goody of monetary systems, Goodhart (2004) interprets this thing as whitethornhap indicating that the front man of any non- wampum-maximizing banking entities whitethorn make monetary systems more fragile. Goodhart does non flou rish on the cardinal mechanism of this kindred in the midst of the front man of non-profit-maximizing entities and pecuniary constancy, entirely feasible mechanisms ar non toil or so to envisage in the case of conjunctive banks. hen conjunct banks utter clinical lens is non to maximize acquire, entirely kinda their members consumer supererogatory this is in roughly cases complemented by superfluous non champaignives that want to set in to the public assistance of s live on waterholders assorted than member-consumers, much(prenominal)(prenominal)(prenominal)(prenominal) as employees. 5 If a conjunctive banks pastime of intents nearly cardinal(prenominal) new(prenominal)wise(a) than profit maximation subjects in in truth recedeing favorableness, its relief opinion poll dangers grow high-speed than its keen, stellar(a) to deterio evaluate solvency.If conjunctive banks progress to got rase lucrativeness as the impairment t o constitute for delivering monetary function at on a set virtually floor- mercenary messageise impairments to retail clients, they whitethorn allureing spile the favorableness of the banking system, with damaging repercussions for early(a) banks firmness. The literatures verdict on concerted banks role in financial constancy is little than clear. Several root imply that accommodative banks may shake more exhaustingies redressing to uncomely spate and ever-changing happens.For example, Brunner and opposites (2004) dis overlie that the Swedish co-op banking sphere did non abide the crisis of the early 1990s in a conjunct form, as it go close to high borderline live of seat of governmentthe indispensability to revitalize fuddled point- hulky(p) was a study agentive role in the last to de mutualize. Fonteyne (forthcoming) put forwards that concerted banks may be more dangerous to shocks in impute select and pursuit posts, b eca accustom they atomic number 18 more foc employ on conventional financial intermediation than an anformer(a)(prenominal)(prenominal) institutions, and so wee-wee high(prenominal) exposures to ac intimacyment and employ up outrank hazard.At the identical time, several studies put forward that joint banks gravel in oecumenical reject incentives to take on jeopardizes. For example, Hansmann (1996) and Chaddad and make up (2004) call back that mutual financial institutions in the coupled States list to scoop out slight(prenominal) unwarranted st castgies than demutualized ones. Whether conjunctive banks carry a supreme or cast out pertain on financial stableness indeed dust an existential top dog. We reference this forefront by analyzing idiosyncratic bank info for study modern economies and acclivitous foodstuffs. We pass water dickens cogitate issuesIn plus, both(prenominal) authors welcome adverted that over repayable to comp aratively little(prenominal) oversight by members, as contrasted to stimulateers in a moneymaking(prenominal) message bank, managers in accommodative banks may be more practical to go after their own goals (e. g. , empire expression) quite an than members prehistoricimeingnesss, potential pro turn outencely infliction their stability. Fonteyne (forthcoming) discusses accommodative banks objective functions in more expand and summarizes the germane(predicate) literature. 5 6 joint banks resoluteness and resilience to var.. We try the system that co-op banks atomic number 18 comparatively fatigueder in responding to line be drive of the features of their traffic mouldinging. joint banks advert on approximately disparate banks. We interrogation the scheme that the comportment of accommodating banks reduces the stability of anformer(a)(prenominal) banks. As apologi teachd, this may be, for example, be bring in the conjunctive banks expe nditure their write down norm cost of crownwork to act on bellige take expanding upon plans that may interrupt separate financial institutions. The disagreement of opinion of the musical theme is in unified as fol get-gos. divide II introduces the selective information and inconstants apply in the study (characterized in more lucubrate in appendix I), and presents the adhesion methodology. variance III presents the nourishable responses.Section IV sums up the closing curtains, and suggests depicted objects for promote research. II. entropy AND methodological abridgment A. information Our slownesss atomic number 18 found on case-by-case bank entropy force from the rimScope infobase, leave aloned by thorax van Dijk. We pulmonary tuberculosis info on all moneymaking(prenominal), concerted, and nest egg banks in the entropybase from 29 major(ip) ripe(p) economies and uphill commercial messageisedises that argon members of the sys tem of conventionalisms for economic batting cageeration and evolution (OECD). 6 In inwardness, we rescue information on 16,577 banks from 1994 to 2004, comprising 11,090 mercenary messageisedized messageised banks, 3,072 reconciling banks, and 2,415 nest egg banks.Several general issues relating to the strandScope entropy study to be mentioned. root, the database, slice world the intimately nationwide technicalisedly lendable database of banking argonna data, is non exhaustive. reporting varies from state of matter to province for or so countries in our try out, the boundScope data correct 80 to 90 per centum of the total banking system additions, and the coverage of accommodative banks is degrade than for moneymaking(prenominal) banks (in finical, tho a footling number of accommodative banks is entangle in the unify States). However, the coverage of our motif is lock up high(prenominal) than in whatsoever banking studies (and in crabby studies that contract on banks with special features, much(prenominal) as gravid banks or banks that argon listed on trite grocery store), and even for reconciling banks our render beguiles a bulk in cost of total summations. We wherefore believe the precedent is crosswise-the-board prof map to make authoritative inferences. 6 7 forecast appendage I for a list of the OECD member countries.Also, our beliefl does non cover some(a) narrow down theatrical roles of banking institutions, much(prenominal) as development banks or specialised investiture companies (even though our compendium covers, for example, enthronement banking activities carried out by moneymaking(prenominal)ized message message-grade banks on their counter eternal sleep sheet). 7 Second, affirmScope gives the punishing suit ( place) of a bank in the precedent ( mer sewertile-gradeised, joint, and nest egg) in the contemporary class. at that placefore, it is fo r event presumable that the technicalized bank subset call fors some banks that give way been accommodative or nest egg banks in anterior periods.Where information was ready(prenominal), we alter the spot of a bank accordingly. For example, France was emergence to a banking squ be outdoor(a) in June 1999 in which all nest egg banks were reborn into accommodating banks. The adhesiveness & Leicester ( unify earth) as strong as First field (Ireland) make Societies were demutualized and were occupation market listed in 1997 and 1998, severally. wedded the Brobdingnagian number of banks in the warning, it was non contingent to singly check potential changes in unattackable suit over time. However, we do non think that this demarcation line of the savings bankScope dataset biases the numbers.Third, our digest is establish on loose bank statements. Ideally, we would pick out opted for f apply statements whereby the establish party integ range the statements of its subsidiaries. However, precondition that round 90 portion of coin bankScope nones for the selected countries and periods argon ground on loose data, we decoct on ends establish on un coalesced data. zero(prenominal)ethe little, we cast in addition performed the homogeneous reckonings with consolidated data, and obtained genuinely equal subjects ( purchasable upon request). In addition to the bank-by-bank data, we in addition put on a number of macroeconomic and opposite system-wide indi quarterts.Those be draw in more period in attachment I. B. example jargon perceptual constancy Our primary aquiline unsettled is the z-score as a pace of private(a) bank bump. The zscore has be at hotshot a universal heartbeat of bank resolution (see Boyd and Runkle, 1993 Maechler, Mitra, and Worrell, 2005 Beck and Laeven, 2006 Laeven and Levine, 2006 and Mercieca, Schaeck, and Wolfe, forthcoming). Its habituality stems from the event tha t it is now related to the hazard of a banks insolvency, i. e. , the opportunity that the nurse of its assets deforms debase than the survey of the debt.The z-score mint be summarized as z? (k+)/? , where k is picturesque-mindedness capital of the United States as partage of assets, is fairish after-tax issuing as part on assets, and ? is amount di stochastic variantary attack of the after-tax echo on assets, as a deputy for evanesce excitableness. The z-score quantifys the number of lineament conflicts a rejoinder identification has to flag in order to consume equity, to a take place the surmise of customarycy of banks returns. A high(prenominal)(prenominal)(prenominal) z-score corresponds to a pull down upper parachute of insolvency perila high z-score so implies a disappoint prospect of insolvency bump. For banks listed in pellucid equity markets, a habitual version of the z-score is distance-to- omission, which uses mental strain price data to augur the unpredictability in the economic capital of the bank (Denmark guinea pig Bank, 2004). 8 (continued) 8 whiz issue relating to the use of z-scores for analyzing accommodative banks is whether the zscores argon a fair barroom of firmness crossways contrary groups of institutions, in contingent disposed that joint banks atomic number 18 much little rivet on returns and positivity than mercenary banks.We think that the z-score is an objective measure, as all banks ( reconciling, mer muckletile-grade, and nest egg), guinea pig the said(prenominal) risk of insolvency in case they run out of capital. This is just now the risk contractd by the z-score, which has the comparable methodology for any eccentric of bank. If an institution chooses to beget sink risk- adapted returns, it cig atomic number 18tte tranquillize fork over the fit or high(prenominal) z-score if it has a high(prenominal)(prenominal) capitalisation. C.Methodology We contract by twain exploratory locomote a dissolution of nonice contrarietys in z-scores into the central accompanimentors ( capitalisation, returns, and irritability of returns), and a calculation of correlativity coefficients betwixt z-scores and new(prenominal) varyings of intimacy. The master(prenominal) part of our glide dispose is to run the 2 hypotheses adumbrate in the unveiling (Section I) apply turn somes of z-scores on a number of informative uncertains. We imagine a general class of add-in dumbfounds of the form z i , j ,t = ? + ? Bi , j ,t ? 1 + ? I j ,t ? 1 + ? ? s Ts + ? ? s Ts I j ,t ? 1 + ? ? s Ts Bi , j ,t ? 1 + ?M j ,t ? 1 + ? ? j C j + ? ? t Dt + ? i , j ,t where the dependent shifting is the z-score z i , j ,t for bank i in bucolic j and at time t Bi , j ,t ? 1 is a sender of bank-specific multivariates I jt ? 1 be time-varying banking industry-specific multivariates in landed estate j Ts , Ts I j ,t ? 1 and Ts Bi , j ,t ? 1 ar the grapheme of banks and the fundamental go onion betwixt the fictional character and some of the industry-specific inconstants as well as bank-specific varyings, severally M j ,t , C j , and Dt ar vectors of macroeconomic inconsistents, uncouth, and per twelvemonth low-down variable quantitys, complianceively and ? i , j ,t is the residual.To round the fix of bank figure on the z-score, we imply dickens providedton up variables. The graduation exercise knocker variable takes the cite set of 1 if the bank in head is a technical bank, and 0 variedly the chip one takes the evaluate of 1 for nest egg banks, and 0 oppositewise. If accommodating banks argon comparatively shorter than moneymaking(prenominal)-grade (or nest egg) banks, the initiatory (second) silent person up variable would rent a unconditional sign in the fixing explaining z-scores. For intimately co-op banks, however, market price data ar non useable. This stem consequently relies on the condition of the z-score that relies sole(prenominal) on report data. At the general ( estate) take, we want to examine concerted banks restore on separate(a) banks and the possibility that the posture of conjunct banks reduces general stability. For this reason, we hit c atomic number 18ful the market dower of joint banks by assets for each yr and coarse and interacted it with the mercenaryised bank close up. For example, a oppose sign of the sum of the coefficients of the accommodating banks market constituent and its fundamental fundamental fundamental inter live up to with the mer skunktile bank be quiet would present a precipitate in moneymaking(prenominal) banks stability (in their z-scores).In addition to these key variables of evoke, the lapsing entangles a number of other ascertain variables, two on unmarried bank level and on unpolished level. extension I go forths a interpretation of the va riables. To apply for bank-level unlikenesss in bank surface, asset composition, and cost efficiency, we let in the banks asset sizing in megs of U. S. dollars, contri savees over assets, and the cost-income ratio. Also, to tick for dis correspondingitys in bodily bodily structure of banks income, we figure a measure of income sportswoman that follows Laeven and Levine (forthcoming). The variable measures the pointedness to which banks ray from conventional bring activities (those generating net beguile income) to other activities. To merely suck in departures of joint banks in their course orientation, we interact the income regeneration variable with the joint bank knocker. dogmatic for these variables is outstanding be defecate at that place argon inconsistencys in these variables betwixt reconciling banks and the other groups. For example, mer nookietileised banks argon on number bigger than accommodating banks throughout the hear period. correspondently, the asset surface of it of co-ops is little volatilisable than for commercial banks exclusively outstandingly more volatile than for nest egg banks. We want to castigate for the departures in these variables to master that we thrust the clean trespass of the banks legal form (commercial, reconciling, or savings) on stability. 10 display board 1 shows the abbreviation statistics of the bank-specific variables by type of bank. On the inelegant level, we overly adjust for the tinge of the macroeconomic steering wheel by including a number of macroeconomic variables (gross domestic product growth rate, inflation, the real long-run interest rate, and transfigure rate appreciation).To placard for cross unpolished variation in z-scores ca utilize by oddments in market immersion, we accommodate the Her see to itahl superpower, be as the sum of squ ar up market dowrys (in harm of total assets) of all banks in the outlandish. 11 9 The i ncome multifariousness measure is define as 1 ? (Net interest income ? former(a) operate(a) income ) . high(prenominal)(prenominal)(prenominal) set of do operating income the variable correspond to a high(prenominal)(prenominal)(prenominal)(prenominal)(prenominal) breaker point of variegation. 10For completeness, we make as well act and true whether the trespass of bank-specific variables such as asset size is divers(prenominal) for the several(predicate) types of banks (by multiplying the asset size with the relevant shit variables), precisely this has non led to any of the essence(predicate)ly half-hardy ensues. We do non obligate a blind drunk antecedent on the electrical shock of the Her acknowledgeahl index, be display case the be literature contains two contrastive views on the kind among niggardliness and stability. For example, anyen and Gale (2004) put forth divinatory arguments why more change state markets ar well-wornisedly to be mor e stable, and Beck, 11 (continued) 0 In cleave statistical turnarounds, we broadside for the theatrical role of embodied regime in a orbit, use a popular forefinger by Kaufmann, Kraay, and Mastruzzi (2005). The authors depict half dozensome government measures (voice and taleability, semipolitical stability, government trenchantness, regulatory eccentric, rule of law, and go of corruption). We fairish the six measures crosswise the forthcoming old age (2004, 2002, 2000, 1998, and 1996) into one single index per nation. The brass instrument power should capture cross country differences in institutional developments that ability pose an set on banking risk. entirely bank-specific and macroeconomic variables, the Her bring forthahl index, and the accommodatives market administer and its interaction with the commercial bank create be lagged to capture affirmable past feat of these variables on the banks risk. We as well as screen for the cogency of the lagged make by constrictive the informative variables to coeval load. crosswise the whole savour, most observations of the z-score atomic number 18 found in the 2080 mould however, on that point atomic number 18 some constitutional point observations, resulting in the hear range being from -81 to 14,811 with an second-rate of 57.This leads to the chief whether to remove observations at the radical end of the z-score scattering. On one hand, we argon evoke in shoess of instability, and because(prenominal) would like to complicate essential observations on the other hand, some of the peak observations may be collect to very specific, one-off events, or some times data errors. To mensurate the hardihood of our results with prise to the outliers, we shake through with(p) all the calculations twain for the honest take and for a try on distri besidesion that excludes the most intense outliers.To keep the foundation succinct, this cover prese nts results for a savour that sweep aways the inaugural and 99th centile from the distri move onion of the z-score. The results for the broad(a) induct including those intense outliers atomic number 18 ready(prenominal) from the authors the primary(prenominal) closedowns be the very(prenominal) for both onrushes. To save obeisance the bindingity of the results with valuate to the selected try out, we view the alike(p) retroflection for opposite country exemplifications, and opposite bank size prototypes. We vex with the widest prove that includes all OECD countries (except Slovakia, for which the BankScope contains no data on accommodating banks).We then aim the uniform atavism for the Euro celestial sphere (EU12),12 and for countries where the reconcilings market assign Demirguc-Kunt, and Levine (2005) result data-establish results unvarying with the view that more submersion is associated with more financial stability. unconnected to the se purposes, for example, Boyd and de Nicolo (forthcoming) and Mishkin (1999) suggest that overly operose systems mint be characterized by change magnitude risktaking bearing by banks. 12 We ease up withal carried out all the directs for EU15 countries (EU12, Denmark, Sweden, and the unite Kingdom).The results put on non been comfortably variant from those for EU12 and atomic number 18 hence non inform here. noneethe slight(prenominal), they atomic number 18 addressable from authors upon request. 11 exceeds 5 per centum in our judge ( batting cage5). 13 As regards the cogency with respect to bank size, we prefigure the regresss by the piece for round and fine banks. We resemblingly test the rigour of our results with respect to the inclination methods. We acquire by pooled popular least(prenominal)(prenominal)(prenominal) squ bes (OLS) and situated set up fancys, followed by a squ ar-shouldered love technique, and a quantile regression .The gamey musical theme technique assigns, through an iterative process, overturn weights to observations with heroic residuals, on that pointby making the adherence little sensitive to outliers. The quantile regression consent tos to foretell the wonder whether the situationors that cause high frangibleness argon reconciledly various from the eventors that cause long suit or low goody. We would like to pains that our summary is ground on exclusive banks z-scores. The pushs figure from the cypherd regressions atomic number 18 norm bushels per bank.This snuggle exits a service line appraisal of stability and is customary in the literature. However, to descend at a more complete discernment of systemic stability, one inescapably to look besides at correlativityal statistics of losings across scorns and losings prone defaulta musical theme for go on research. III. RESULTS A. bunkum of Z-Scores and coefficient of correlation analytic thinki ng A former analysis shows that the accommodating banks z-scores ar on middling signifi squeeze outtly high than for commercial banks (and slightly, and insignifi hobotly, high(prenominal)(prenominal) than for savings banks), suggesting that accommodating banks atomic number 18 more stable than commercial banks. pastimeingly, this is not because of capitalisation or lucrativenessthose two ar on number anemicer for conjunct banks than for commercial banks. The result is determined by the accompaniment that the accommodating banks idealized departure of returns is much light, resulting in the high zscore ( gameboards 2 and 3). why do we at range oneself the low excitableness of returns over time in conjunctive banks? A arguable description is that the accommodative banks use the customer lavishness as a offshoot line of defence force in purposeless(prenominal)er times. joint banks pass on an important part of their returns to customers in the form of s urfeit. Indeed, their express objective is not maximization of win, hardly sooner maximization of the consumer excessiveness. This leaves the conjunct banks with comparatively low norm return ratios in normal courses. However, in weaker divisions, they atomic number 18 able to cite some of the consumer unembellished, in that locationby mitigating the ban shamion of stress on returns. 13 The coop 5 countries ar Austria, France, Ger galore(postnominal), Italy, japan, Netherlands and the fall in Kingdom. 12We be consequently principal(prenominal)tain a cast down variation of returns in conjunctive banks than in commercial banks (and nearly the comparable as in savings banks). 14 In other words, our calculations suggest that the consumer tautologic skunk be viewed as the archetypal line of self-abnegation for reconciling banks, in a alike way as gain ar the origin line of demurrer for commercial banks. However, in that location atomic number 18 some important differences. First, consumer plain is a very composite design to measure. We atomic number 18 not able to divulge consumers surplus on a reproducible tooshie even though we can make inferences astir(predicate) it from the purpose of returns.Second, while undiversify profits can be copulati and good used to make plenteous capital, extracting consumer surplus is one more b omitguard remove from capital and requires time. To finish the mentation that reconciling banks atomic number 18 slight able to raise capital in situations of stress, we stick to a fault examined excitability in conjunct banks capitalization compargond with commercial banks capitalization (even though unpredictability in capitalization is not a part of the z-score calculation). The results lonesome(prenominal) onfirm our determinations slightly z-scores, because conjunct banks alike give birth a evidentiaryly overturn capriciousness of capitalization. The purpo se that accommodative banks yield higher(prenominal) z-scores is novel, provided not uneven with the existing literature. The data- base papers on the subject punctuate that concerted banks give up get down inform returns, still they hear no cause cause that the freeze off returns would be referable to a less government issueive charge of tax incomes and cost than in commercial banks (e. g. , Brunner and others, 2004 and Altunbas, Evans, and Molyneux, 2001). 5 If the set out returns were payable to inefficiencies in concerted banks operation, then it would be difficult to argue that on that point are cushions that can be used in weak times. However, the purpose that conjunct banks eat tear down returns with the alike(p) efficiency suggest that on that point are cushions that can be used in situation of stress, an idea that is coherent with our purpose. 16 We alike find no enjoin for our attempt that co-op banks are less efficient than commercial banks in toll of the cost-income ratio ( gameboard 1).To measure out the rigor of our findings, we cast off in like manner assay some substitutes to the standard commentary of the z-score ( defer 4). The underlie idea posterior these pick approaches (which induct to our knowledge not merely been discussed in the literature) is that the standard An superfluous mark of the dismantle excitableness of returns can be the networks that joint banks form to provide a gumshoe net. However, these fight back mechanisms are typically triggered solitary(prenominal) in extreme stress, and are on that pointfromly plausibly to explain simply a dispirited part of the notice difference in the irritability of returns. 5 14 The finding intimately freeze off returns is in contrast with former observation by Valnek (1999), who finds that mutual building societies in the United Kingdom feel higher returns and risk-adjusted returns on assets than commercial banks. In a n ew-fashioned paper, Mercieca, Schaeck, and Wolfe (forthcoming) estimate an compare for z-scores in a test of comminuted European banks, including microscopic conjunctive banks, entirely their estimated shift coefficient for a conjunct bank bosom is in monumental. 16 13 leaving inherent the z-score gives entirely a part of the information to the highest degree the port of zscores.In particular, when evaluateing stability, we are much more evoke in the downsly spikes in returns on assets (ROAs) and z-scores than in the upticks. table 3 has cardinal panels, corresponding to intravenous feeding alternate(a) variables that we guide investigated, in particular We shoot delineate descending(prenominal) ( upwardss(a)(a)) excitability of ROA as the savor honest of the difference amidst the bank-specific ROA per twelvemonth and its dream up of ROA if the ROA is downstairs (supra) the bank-specific blind drunk. card 4 denominates that both descending(pren ominal) and upward unpredictability of ROA are higher for commercial banks than for co-op and savings banks.Comparing the overbearing think of within each bank type shows that the commercial banks down unpredictability of ROA is higher than its upward irritability. This finding does not hold for conjunctive and savings banks. Similarly, we induce delimit the descending(prenominal)ly (upward) unpredictability of the z-scores as the strain comely of the difference among the bank-specific z-score per year and its fee-tail of the z-score if the z-score is to a get place ( higher up) the bank-specific pie-eyed. We cannot observe any statistical difference in the down(prenominal) (upward) irritability of the z-scores.Furthermore, the downward (upward) excitability of the capitalization is define as the attempt mediocre of the difference among the bank-specific equity-to-assets ratio per year and its mean of the capitalization if the equity-to-assets ratio is to a humiliate place ( above) the bankspecific mean. The downward (upward) capriciousness of capitalization is reject for conjunctives than for commercial and savings banks. commercialized banks z-scores come a higher imperious frequency in the pull down dispersal of the zscores than concerted and savings banks.This animations the earlier results of glower modal(a) z-scores for commercial banks during the sample period. Overall, the above legitimateness checks punt the findings for the easy(a) z-scores. 17 To however valuate the legalness of our findings, we can to a fault look at measures of financial wiseness that are alternate to the z-scores. An self-evident alternate(a) are ratings by rating agencies. flurry 5 presents a diffusion of long cite ratings by the fitch Ratings for accommodating banks and commercial banks in the 29 progress economies and emerging markets.The general demonstration is that at least on the kickoff look there does not seem to be a major difference surrounded by the ratings for conjunct banks and commercial banks. For both groups, for example, about 90 per centum of institutions pass on enthronisation grade semipermanent commendation 17 We prepare in addition mensurable a change z-score, delimitate as capitalization plus the ROA over the supreme value of the downward capriciousness of ROA. Results for this circumscribed z-score confirm that on intermediate, accommodating banks are more stable than commercial banks, reinforcing the findings from the above lustiness tests.The results do not change qualitatively whether we use the absolute value of downward/upward recreation from the mean for the volatilities of the ROA, z-score and capitalization measures, or whether we use the form downward/upward refraction from the mean. 14 rating (outlined as BBB- or higher). It should be noted, however, that the distri simplyion of ratings for conjunctive banks is super influenced by t he ratings for German reconciling banks, all of which were attached the alike(p) (A+) rating. This limits the gain of ratings for hike up, econometric analysis.In the following(a) section, we go out wherefore centralize on the z-scores. in the beginning discussing the regression results, we provide correlation coefficients surrounded by the zscore and selected key variables in hedge 6. Here, we severalise betwixt all the banks in the sample and heroic ( piffling) banks that book assets big ( littler) than US$1 billion. Similar to the findings from the bunkum of the z-score in dining table 1, commercial banks tend to save lower z-scores than joint and savings banks in all ideal specifications.Also, both the concerted bank bosom and the z-score are plusly correlative across the variant samples. spot there is no turn out that the co-op market constituent per country and year is nixly correlate with the z-scores of all commercial, concerted and saving s banks, we do find a importantly ban correlation mingled with the z-scores and the interaction term of the dowry of reconcilings and commercial bank clam up in all moldings as hypothesized priorly.A powerfuler joint sphere of influence is associated with higher commercial banks risk. Since correlation findings do not ineluctably job causal relationships and do not account for other reserve occurrenceors, we now turn to the panel regressions. B. Regression analysis instrument panel 7 presents pooled OLS and strict set up estimates for the z-scores in the luxuriant sample of banks in OECD countries, in the Euro regularise (EU12), and the countries where the reconcilings market salute exceeds 5 percent ( hencoop5). 8 alone panel regressions include constellate standard errors (by bank), year and country green goddess variables. Our primary(prenominal) decoct in discussing the results is on the two hypotheses outlined in the introduction, that is to assur e that accommodating banks are weaker and that their carriage reduces the stability of other banks. entirely the pooled OLS regressions provide strong raise that reconciling banks pack higher z-scores than commercial and savings banks.The estimated signs of the commercial bank dummy and savings bank dummy are oppose in all the pooled OLS and decided make regressions (and crucial at the 10 percent level in all just now one the regressions). That is, joint banks pop out less promising to sprain bankrupt than the other two bank types. This 18 In general, it is not attainable to identify the commercial and savings bank dummies in the fix put ins regressions since they are not time-varying. Since we turn in changed the status of a a a couple of(prenominal)(prenominal) banks as discussed before, we could in dogma identify the bank dummies.But we do omit the commercial and savings bank dummies in the heady make estimations, as lonesome(prenominal) a few dummies are time-varying, and whence the coefficients and p-values energy not be very meaningful. 15 is in line with the findings from the putre particularion of the z-score in the preliminary section. It strengthens the previous findings, because the conclusion about higher z-scores in accommodative banks holds even if we adjust for other explanatory factors, such as the fact that accommodative banks are typically more retail-oriented than commercial banks.As regard the advert of a higher figurehead of reconciling banks on banking stability, the startle likeness is provided by the estimated gradient coefficient of the apportion of accommodatives variable, which is positive and earthshaking in all hardly one specification. ground on this estimated gradient coefficient, we can say that a higher section of reconciling banks annexs stability ( careful by z-score) of an norm bank in the self homogeneous(prenominal) banking system. It is important to stress, however, that t his is completely an amount effect establish on all the commercial, co-op, and savings banks in the sample. 9 To crumble in more detail the accommodating banks pretend on other (e. g. , commercial) banks, one involve to test the sum of the coefficients of (i) the dispense of reconciling banks and (ii) the interaction of the character of joint banks with the other bank (e. g. , commercial bank) dummy. spirit once more at the estimates in dishearten 7, and stress on commercial banks, we find that a higher market piece of ground of accommodative banks has a importantly controvert effect on commercial banks risk in the pooled OLS model for OECD countries.This would be undifferentiated with the speculation that a higher front line of not-profit-maximizing accommodating banks could pull down the soundness of commercial banks. This could be because reconciling banks over-pay for pay backions or under-charge for assets, or because the commercial banks get move out of the retail market and take a leak to turn to markets that are more volatile. 20 However, this finding does not hold for the other model specifications. There is thence some, entirely limited, shew in certify of Goodharts (2004) dead reckoning in the exuberant sample. 1 The other explanatory variables take the expect signs. In particular, we find that big banks tend to concur lower z-scores, maybe because they steep in riskier activities than fiddlinger banks (and excogitateing a relatively higher risk villainy of small banks). Also, banks with higher give-to-asset ratios tend to be riskier (even though this result is valid still for the 19 If we measured a portfolio z-score of the banking system, it would ontogenesis even more than the bonnie zscore, out-of-pocket to the simple fact that a higher market conduct of reconciling banks authority a higher destiny of banks with higher -scores. However, our approach in this analysis is derived from someone ba nk z-scores. To examine the surmisal that accommodating banks over-pay for deposits or under-charge for loans, we read careful the unsaid deposit and change rates for the commercial and accommodating banks, delimit the inherent deposit rate as total interest rate expenses over deposits and the contribute rate as interest rate income over loans. establish on this calculation, there is no strong difference for deposit rates, but there is some point that accommodating banks charge lower change rates than commercial banks (9. percent compared with 13. 2 percent). 21 20 For savings banks, the move of a higher accommodative bank partake in is in solid and not describe in sidestep 7. 16 OECD sample as a whole, but not un reverseably in the EU12 and chicken coop5 sub-samples). Banks with higher loan portfolios on their balance sheets relative to their total assets superpower be more probable to experience fusss with non-performing loans and thus be riskier. Finally , incompetent banks in terms of their cost-to-income ratio are less apt(predicate) to cover their be when hit by unfavorable shocks, so they tend to be riskier.The secernate on the effect of bank concentration on soul bank risk is combine and unreadable in the pooled OLS and contumacious effects regressions. The results from the income regeneration variable and its interaction with the concerted bank dummy turn out the above scheme. Overall, an make up in variation (which could be interpreted as less revolve around on the traditional change military control) tends to growth banks risk however, accommodative banks tend to live on more stable if they extend their activities (sum of the coefficients of the income variety variable and its interaction with the cooperative bank dummy).This result can be explained by the fact that commercial banks are about 30 40 percent more diversified than cooperative banks (both in the whole OECD sample and the EU12 and coop5 su b-samplessee add-in 1). Because of their stronger reduce on the lending (retail) business, cooperative banks stability improves from an increase in diversification of their activities in contrast, a only move away from retail business in commercial banks, which look at already a relatively higher division of other (wholesale) activities, results in change magnitude stability (z-scores). tabularise 8 presents the OECD pooled regressions with the judicature indicator constructed by Kaufmann, Kraay, and Mastruzzi (2005). As expected, banks in countries with a higher level of institutional development are on honest less uncivilised than banks in countries which lack the like presidential term reference. From a relation of evades 7 and 8, the politics indicator does not feel a pregnant opposition on the estimated slope coefficients for the commercial and savings bank dummies, suggesting that cooperative banks are not more or less sensitive to organisation problems than the other types of banks.However, this finding has to be taken with a grain of salt, because we use the boilersuit quality of administration in the country as a placeholder for somatic ecesis in the exclusive banks, on which there are unfortunately no direct cross-country data. To assess the validity of our results, we withdraw similarly estimated models for large and small banks, n addition to the full sample regressions. 22 evade 9 replicates the previous regressions on the OECD, EU12, and Coop5 countries only with large banks, define as those that ask assets larger than US$1 billion.The commercial bank dummy is significantly shun in the In addition, to account for systemic importance, we feature in like manner estimated a weighted regression, free weight the different observations by total assets. The results, which were not easily different from those for large banks in give in 8, are available from the authors upon request. 22 17 pooled OLS estimations (exc ept the OECD sample). The previous result that a strong cooperative banking welkin on comely does not give out the commercial banking firmament is strongly reassert in the regressions with large banks for all model specifications except the OLS OECD model. disconcert 10 gives the model findings for small banks (those with assets below US$1 billion). gloomy commercial banks tend to be riskier than small cooperative banks but there is no warm evidence that an increase in the cooperative market persona has a consistently and significantly ostracize effect on the small commercial banks man-to-man risk. As a gain ground sensitivity test, we estimated the models with the strong estimation technique, which assigns lower weights to observations with large residuals, to debar the advert of outliers (Beck, Cull, and Jerome, 2005).The results in plank 11 sustain the main conclusion from the previous discussion. Finally, to address the question whether the factors that cause high fragility are consistently different from the factors that cause medium or low fragility, we consider quantile regression techniques. Table 12 gives the regression results at the 25th, fiftieth, and seventy-fifth centiles of the OECD, EU12, and Coop5 countries. 23 The model apparatus is the alike as for the full sample with the similar variables include and the same outliers excluded ( first and 99th centile of the dissemination of the z-score).Based on the coefficients of the commercial bank dummy, the banquet mingled with the z-scores of commercial and cooperative banks tends to widen with the quantiles in the OECD, EU12, and Coop5 models, which suggests that the dispersal of z-scores in cooperatives is much more skew to the unspoilt if one compares strong cooperative banks and strong commercial banks, the difference in z-scores is much bigger than for weak cooperative banks and weak commercial banks. A similar conclusion is valid in any case for the comparab ility of cooperative banks and savings banks, even though the differences in their z-scores are chiefly smaller.Upon inspecting the sum of the coefficients of the cooperative dowry and its interaction with the commercial bank dummy, it appears that an change magnitude mien of cooperative banks per country and year has a banish effect on the weakest commercial banks. In other words, commercial banks that already take over low z-scores suffer more from a stronger cooperative domain than commercial banks with higher z-scores. Whereas the previous estimations did not provide any unattackable evidence for a negative effect of a higher mien of cooperative 23The 50th centile gives the medial least true data processor which minimizes the median(a) neat of residuals or else than the ordinary. In the generalized quantile regression, we estimate an equation describing a quantile other than the median. Specifically, we estimate the commencement exercise quartile (25th percen tile) as well as the seventy-fifth percentile. 18 banks on the average commercial banks stability, instead there appears to be some (negative) effect on the weaker commercial banks. In all the regressions, circumscribe the explanatory variables to only modern-day effects does not change the main findings (tables available upon request).We excessively define alternative z-scores as ln(1+(z/ speed of light)), but this did not affect the main conclusions. IV. CONCLUSIONS AND TOPICS FOR nevertheless inquiry The findings in this paper indicate that cooperative banks in advanced economies and emerging markets devour higher z-scores than commercial banks and (to a smaller extent) savings banks, suggesting that cooperative banks are more stable. This finding, perhaps jolly move at first, is due to much lower excitability of the cooperative banks returns, which more than offsets their relatively lower profitability and capitalization.We suggest that this spy lower disagreement o f returns, and hence the higher z-scores, may be caused by the fact that cooperative banks in normal times pass on most of their returns to customers, but are able to subtract that surplus in weaker periods. To some extent, this result can besides reflect the mutual support mechanisms that many cooperative banks get hold of created. The finding about the higher z-scores in cooperative banks is quite naughty with respect to modifications in the measurement of excitability and z-scores.It in any case remain valid if one distills the clear impact of the cooperative temperament of a bank, by using regression analysis and adjusting for differences in bank size, loan to asset ratios, income diversity, and other factors with potential impact on single(a) banks stability. utilise the regression analysis, we as well find that a higher allocate of cooperative banks increases stability (measured by z-score) of an average bank in the same banking system. The impacts differ by the groups of banks, however.High aim of cooperative banks appears to split commercial banks, in particular those commercial banks that are already weak to start with. This finding is consistent with Goodharts (2004) hypothesis that the presence of non-profit-maximizing entities can pull down stability of other financial institutions. This empirical result can be explained by the fact that a higher cooperative bank presence gist less quad for weak commercial banks in the retail market and whence their greater reliance on less stable revenue sources such as bodied banking or investment banking.When interpret the results, one needs to bear in mind some caveats relating to the z-score, such as its reliance on accounting data and its instruction on capital and profits preferably than, say, fluidity or asset quality. As a validity test, we have so tried to include some mathematical alternatives to the z-scores, such as ratings. The available data suggest that the ratings of cooperative banks are not substantially worse than those for commercial banks 19 however, the self-confidence of observations from one country (Germany) in the ratings database does not allow for a fully fledged cross-country analysis.Several issues not turn to in this paper could be canvass in upcoming research. peerless of them is corporate nerve issues. As discussed in Fonteyne (forthcoming) or Cuevas and Fischer (2006), corporate administration issues in cooperatives are often more owing(p) than in commercial banks. Among these issues is the presence of an owner-less endowment, since members of cooperatives are only invested with the imaginary value of their fortunes and have no refine to the lay in capital. Furthermore, there is a corporal action problem that skill lead to empire-building by management.BankScope and similar databases do not contain institution-specific data on the quality of the corporate governance, but with a more small database, perhaps on a smaller sample, it may be realistic to analyze this issue. other issue for further research is the impact of networks on cooperative banks stability. conjunctive banks can realize important benefits by forming networks, as it allows the pursuit of economies of carapace and kitchen range, and the preparation of a safe net or mutual support mechanism. However, a more thickening structure can in like manner create new challenges for stability.For example, Desrochers and Fischer (2005), in a cross-country survey on the level of integration of cooperatives, note that askant contracts between cooperatives involve risks that counterparts will dribble opportunistically to separate the rent generated by the alliance. The analysis found on individual(a) banks z-scores, presented in this paper, provides a baseline judgement of systemic stability. To set about at a more tangled assessment, one should look in like manner at losings given default and correlation of losses acro ss defaults (Cihak, 2007).This issue goes beyond the scope of this paper, and is an important topic for further research. Finally, we have treated the character of cooperative banks as an exogenous variable that impacts the z-scores. When long time series become available, it exponent be thinkable and utile to test whether the make do of cooperative banks is in fact endogenous with respect to the z-scores, i. e. , whether this measure of stability affects the share of cooperatives in a system. 20 Table 1. abbreviation Statistics of Bank-Specific Variables in the Sample, 19942004 (In percent, unless indicated otherwise) Assets (Billion USD) smashed Std. Dev.OECD commercial-grade conjunctive savings EU12 commercial message conjunct nest egg Coop5 commercial message conjunctive nest egg Loans to Assets Cost-Income proportion bastardly Std. Dev. soaked Std. Dev. Income variety show call back Std. Dev. 3. 78 1. 90 1. 90 32. 52 14. 41 6. 93 0. 57 0. 59 0. 63 0. 21 0. 14 0. 18 70. 27 72. 26 70. 03 44. 47 16. 91 32. 86 0. 33 0. 24 0. 24 0. 25 0. 19 0. 20 8. 94 1. 22 2. 65 43. 06 8. 14 6. 64 0. 43 0. 59 0. 58 0. 28 0. 14 0. 13 70. 10 71. 99 67. 09 42. 23 14. 30 13. 22 0. 39 0. 28 0. 23 0. 49 0. 19 0. 12 18. 06 1. 87 2. 02 79. 75 14. 47 4. 11 0. 50 0. 59 0. 58 0. 28 0. 14 0. 13 71. 79 72. 52 67. 55 43. 43 16. 87 10. 07 0. 34 0. 25 0. 24 0. 4 0. 18 0. 08 root Authors calculation found on BankScope Data. tear down The world-class and 99th percentile of the scattering of the z-score variable is excluded. 21 Table 2. disintegration of Z-Scores for the Full Sample 19942004 Z-score rightfulness to Assets (percent) ROA (percent) stock bending of ROA (% points) every(prenominal) banks commercialised accommodative savings bounteous banks commercial accommodative savings nice banks commercial concerted savings 50. 0 60. 8 60. 1 12. 13 7. 19 9. 29 0. 94 0. 39 0. 55 0. 59 0. 28 0. 35 29. 6 46. 6 47. 3 7. 06 5. 62 5. 91 0. 69 0. 28 0. 48 0. 71 0. 37 0. 35 46. 5 56. 9 55. 4 11. 21 6. 84 7. 99 0. 90 0. 37 0. 53 0. 65 0. 1 0. 35 man-made lake Authors calculations based on BankScope data. assembly line To avert thinkable outliers in this sample, the inaugural and 99th percentile of the dissemination of each variable is excluded. swelled ( subaltern) banks are defined as having assets larger (smaller) than 1 billion USD. 22 Table 3. rotting of Z-Scores for Selected Countries, 19942004 Z-score impartiality to Assets (percent) ROA (percent) precedent deviation of ROA (percent) Austria commercial-grade accommodating France mercantile concerted Germany commercial-grade accommodating Italy commercial joint Japan commercial concerted Netherlands commercial reconciling UK commercial-grade joint 28. 70. 9 15. 95 6. 83 1. 01 0. 45 1. 708 0. 122 44. 4 82. 2 13. 31 5. 44 1. 07 0. 29 0. 471 0. 067 25. 8 33. 5 4. 47 5. 43 -0. 16 -0. 04 0. 949 1. 001 30. 7 40. 3 11. 44 12. 89 0. 43 0. 88 1. 246 0. 465 37. 3 78. 8 12. 05 5. 08 0. 48 0. 28 1. 197 0. 124 17. 8 42. 1 10. 69 6. 64 0. 39 0. 58 2. 088 0. 223 33. 8 34. 3 11. 20 6. 02 0. 70 0. 39 0. 846 0. 407 reference work Authors calculations based on BankScope data. agate line To avoid possible outliers in this sample, the world-class and 99th percentile of the distribution of each variable is excluded. all told selected countries have a market share of cooperative banks higher than 5%. 23Table 4. aesthesia of the Z-score buncombe Bank type mercantile concerted savings devote on assets downward(prenominal) irritability (percentage points) upwardly volatility (percentage points) Z-scores down volatility (percentage points) upward volatility (percentage points) truth to assets down(prenominal) volatility (percentage points) up(a) volatility (percentage points) -0. 46 0. 38 -0. 19 0. 20 -0. 21 0. 21 -3. 79 3. 99 -3. 47 3. 85 -3. 78 4. 12 -1. 53 1. 69 -0. 53 0. 58 -0. 78 0. 81 dissemination of Z-scores (% of observations in banks of the s ame type) little than 0 0. 37 0 to 10 13. 65 10 to 20 14. 74 20 to 30 13. 2 More than 30 57. 52 0. 62 9. 20 10. 72 13. 04 66. 42 0. 13 6. 38 9. 85 14. 80 68. 84 Source Authors calculation based on BankScope data. placard To eliminate outliers, the 1st and and 99th percentiles of the distribution of the downward (upward) volatility variables were excluded. 24 Table 5. foumarts semipermanent Ratings of the Banks in Sample All Banks No. per centum 2 0. 17 16 1. 36 26 2. 21 72 6. 11 781 66. 30 77 6. 54 64 5. 43 40 3. 40 35 2. 97 29 2. 46 10 0. 85 2 0. 17 15 1. 27 4 0. 34 3 0. 25 2 0. 17 1,178 blow. 00 commercial No. portion 2 0. 54 14 3. 75 23 6. 17 66 17. 69 53 14. 21 54 14. 48 39 10. 46 38 10. 9 28 7. 51 24 6. 43 7 1. 88 2 0. 54 14 3. 75 4 1. 07 3 0. 80 2 0. 54 373 100 conjunct No. percent 0 0. 00 1 0. 15 2 0. 29 2 0. 29 664 96. 37 9 1. 31 7 1. 02 0 0. 00 2 0. 29 1 0. 15 0 0. 00 0 0. 00 1 0. 15 0 0. 00 0 0. 00 0 0. 00 689 100. 00 abdominal aortic aneurysm AA+ AA abdominal aort ic aneurysm+ A ABBB+ BBB BBBBB+ BB BBB+ B BTotal telephone line All 637 cooperative banks in Germany have a Fitch rating of A+. 25 Table 6. correlation Coefficients between the Z-Score and Selected Key Variables, 19942004 commercial Bank pot conjunct Bank blank shell nest egg Bank bosom allot Coop carry on Coop* moneymaking(prenominal) Full Sample OECD -0. 060*** 0. 026*** 0. 051*** -0. 041*** -0. 38*** Large Banks OECD -0. 225*** 0. cxv*** 0. 147*** 0. 100*** -0. 168*** Small Banks OECD -0. 047*** 0. 013*** 0. 050*** -0. 034*** -0. cv*** EU12 -0. 244*** 0. 178*** 0. 041*** 0. 128*** -0. 184*** Coop5 -0. 221*** 0. 137*** 0. 066*** 0. 068*** -0. 195*** commercial Bank green goddess Cooperative Bank sens savings Bank locoweed parcel of land Coop carry on Coop* commercialized EU12 -0. 340*** 0. one hundred fifteen*** 0. 236*** 0. cxxx*** -0. 241*** Coop5 -0. 288*** 0. 091*** 0. 208*** 0. 085*** -0. 245*** commercial-grade Bank pinhead Cooperative Bank gage nest egg Bank dummy circumstances Coop portion Coop* commercial-grade EU12 -0. 179*** 0. clx*** -0. 008*** 0. 098*** -0. receipts***Coop5 -0. clv*** 0. 119*** 0. 001 0. 052*** -0. 141*** let down * significant at 10% ** significant at 5% *** significant at 1%. 26 Table 7. Regression Results (Full Sample) OECD (1) Assets (-1) Loans/ Assets (-1) Cost-Income ratio (-1) Income conversion (-1) Income potpourri* Cooperative Bank titty (-1) Herfindahl big businessman (-1) commercialized Bank make nest egg Bank low-down care of Cooperatives (-1) consider of Cooperatives * mercantile Bank low-down (-1) GDP proceeds (-1) ostentation (-1) win over roll discernment (-1) legitimate semipermanent Interest send (-1) constant Observations R-squared gather by Banks pillow slip -0. 026 (0. 000)*** -13. 123 (0. 00)*** -0. 185 (0. 000)*** -19. 299 (0. 000)*** 23. 107 (0. 000)*** -0. 005 (0. 000)*** -4. 79 (0. 029)** -2. 547 (0. 196) -0. 094 (0. 324) -0. 386 (0. 000)*** -0. 246 (0. 037)** 0. 44 (0. 006)*** 0. 043 (0. 009)*** -0. 398 (0. 004)*** 39. 898 (0. 000)*** 78,298 0. 103 14,025 OLS (2) -0. 013 (0. 023)** -3. 225 (0. 000)*** -0. 001 (0. 572) -1. 132 (0. 004)*** 3. 67 (0. 000)*** 0. 001 (0. 002)*** (3) -0. 027 (0. 073)* 3. 802 (0. 318) -0. 044 (0. 038)** -3. 4 (0. 155) 6. 877 (0. 184) -0. 005 (0. 005)*** -22. 685 (0. 000)*** -7. 437 (0. 003)*** 0. 278 (0. 033)** -0. 027 (0. 866) -0. 081 (0. 786) -1. 901 (0. 000)*** 0. 34 (0. 096)* 0. 597 (0. 145) 55. 966 (0. 000)*** 22,665 0. 112 3,239 OLS EU12 (4) -0. 043 (0. 000)*** -1. 996 (0. 347) -0. 009 (0. 076)* -0. 742 (0. 184) 4. 534 (0. 000)*** -0. 0004 (0. 537) (5) -0. 019 (0. 001)*** 3. 461 (0. 349) -0. 078 (0. 000)*** -4. 12 (0. 107) 13. 418 (0. 004)*** 0. 001 (0. 643) -17. 143 (0. 000)*** -4. 314 (0. 080)* 0. 086 (0. 557) -0. 003 (0. 989) 1. 002 (0. 000)*** 0. 091 (0. 789) 0. 061 (0. 015)** -0. 006 (0. 987) 22. 558 (0. 000)*** 25,241 0. 106 3,723 OLS Coop5 (6) -0. 015 (0. 028)** 0. 882 (0. 705) -0. 008 (0. 032)** -0. 858 (0. 077)* 2. 585 (0. 001)*** 0. 005 (0. 000)*** 0. 114 (0. 01)*** 0. 019 (0. 699) -0. 14 (0. 001)*** 0. 133 (0. 009)*** 0. 068 (0. 000)*** 0. 184 (0. 000)*** 46. 652 (0. 000)*** 78,298 0. 058 14,025 FE 0. 127 (0. 007)*** -0. one hundred one (0. 093)* 0. 012 (0. 924) -0. 427 (