Credit cooperatives: Market structure, competition, and conduct. Exploring the case of Paraguay

Schneider, Andreas (2020): Credit cooperatives: Market structure, competition, and conduct. Exploring the case of Paraguay.

Abstract

Measures of concentration and competition in the financial sector are important to determine public policies. However, cooperatives, and in particular in the context of small developing countries are largely ignored in economic literature. The empirical analysis is descriptive due to data availability and analysis the loan market of large credit cooperatives. However, findings are indicative and tentative. Results show that, in general, a) the cooperative system is highly concentrated, b) the loan market of large financial cooperatives is not concentrated, c) however, most loan modalities are highly concentrated, some are competitive and some are not, d) there is no indicative evidence of market abuse of the three largest credit cooperatives.

• Item Type: MPRA Paper
• Language: English
• Keywords: Credit cooperatives, Paraguay, Market structure, Competition, HHI, dual HHI
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms

References

Allen, Franklin, and Douglas Gale. 2004. Competition and financial stability. Journal of Money, Credit, and Banking 36: 453-480. [CrossRef]

Angbazo, Lazarus. 1997. Commercial Bank Net Interest Margins, Default Risk, Interest Rate Risk, and Off-Balance Sheet Banking. Journal of Banking & Finance 21: 55–87. [CrossRef]

Attaran, Mohsen, and Martin Zwick. 1987. Entropy and other measures of industrial diversification. Quarterly Journal of Business and Economics 26: 17-34.

Ayadi, Rym, David T. Llewellyn, Reinhard H. Schmidt, Emrah Arbak, and Willem Pieter de Groen. 2010. Investigating diversity in the banking sector in Europe. Key Development, Performance, and Role of Cooperative Banks. Brussels: Center for European Policy Studies.

Bae, Kee-Hong, and Vidhan K. Goyal. 2009. Creditor rights, enforcement, and bank loans. The Journal of Finance 64: 823-860. [CrossRef]

Bain, Joe S. 1951. Relation of profit rate to industry concentration: American Manufacturing: 1936-1940. The Quarterly Journal of Economics LXV: 293-324.

Barra, Cristian, and Roberto Zotti. 2017. Bank Performance, Financial Stability, and Market Competition: Do Cooperative and Non-Cooperative banks behave differently? CELPE. Discussion Paper 143. The University of Salerno.

Beck, Thorsten, Ross Levine, and Norman Loayza. 2000. Finance and the source of growth. Journal of Financial Economics 58: 261-300. [CrossRef]

Beck, Thorsten, Asli Demirgüç-Kunt, and Vojislav Maksimovic. 2004. Bank competition and access to finance: International Evidence. Journal of Money, Credit, and Banking 36: 627-648. [CrossRef]

Beck, Thorsten, Asli Demirgüç-Kunt, and Ross Levine. 2006. Bank concentration, competition, and crisis: First results. Journal of Banking & Finance 30: 1581-1603. [CrossRef]

Berger, Allen N., Asli Demirgüç-Kunt, Ross Levine, and Joseph G. Haubrich. 2004. Bank concentration and competition: An Evolution in the making. Journal of Money, Credit, and Banking 36: 433-451. [CrossRef]

Berry, Charles H. 1971. Corporate growth and diversification. The Journal of Law and Economics 14: 371-383. [CrossRef]

Bikker, Jacob, and Katharina Haaf. 2002. Measures of competition and concentration in the banking industry: a review of the literature. Economic & Financial Modelling: A Journal of the European Economics and Financial Center 9: 53-98.

Bikker, Jacob, Laura Spierdijk, and Paul Finnie. 2007. The impact of market structure, contestability, and institutional environment on banking competition. DNB Working Paper 156/2007. Amsterdam: De Nederlandsche Bank.

Bikker, Jacob, and Laura Spierdijk. 2009. Measuring and explaining competition in the financial sector. Discussion Paper Series 09-01. Tjalling C. Koopmans Research Institute. Utrecht School of Economics.

Birchall, Johnston. 2009. A competitive analysis of co-operative sectors in Scotland, Finland, Sweden, and Switzerland. Co-operative Development Scotland. Glasgow: CDS.

Birchall, Johnston, and Lou Hammond Ketilson. 2009. Resilience of the cooperative business model in times of crisis. ILO Sustainable Enterprise Programme. Geneva: International Labour Office.

Bos, Jaap W.B., Ivy Chan, James W. Kolari, and Jiang Yuan. 2009. A Fallacy of Division: The failure of market concentration as a measure of competition in U.S. Banking. Discussion Paper Series 09-33. Tjalling C. Koopmans Research Institute. Utrecht School of Economics.

Boyd, John H., Gianni de Nicolò, and Abu M. Jalal. 2006. Bank risk-taking and competition revisited new theory and new evidence. IMF Working Paper 06/297. Washington DC: International Monetary Fund.

Brissaud, Jean-Bernard. 2005. The meanings of entropy. Entropy 7: 68-96. [CrossRef]

Brown, Teresa. 2018. Measurement of mineral supply diversity and its importance in assessing risk and criticality. Resources Policy 58: 202-218. [CrossRef]

Center for Global Development. 2016. Financial Regulation for improving financial inclusion. A CGD Task Force Report, chaired by Stijn Claessens and Liliana Rojas-Suarez. Washington, DC: Center for Global Development (CGD).

Chang, Eui Jung, Solange Maria Guerra, Rodrigo A. de Souza Peñaloza, and Benjamin Miranda Tabak. 2005. Measuring Banking concentration: the Brazilian case. In Financial Stability Report. Brasilia: Banco Central do Brasil, vol. 4, pp. 109-129.

Chortareas, Georgios E., Jesús G. Garza-Garcia, and Claudia Girardone. 2011. Banking sector performance in Latin America: Market power vs. efficiency. Review of Development Economics 15: 307-325. [CrossRef]

Claessens, Stijn, and Luc Laeven. 2005. Financial dependence, banking sector competition, and economic growth. Journal of the European Economic Association 3: 179-207. [CrossRef]

Comisión Federal de Competencia Económica. 2015. Criterios técnicos para medir concentración del mercado. COFECE, CFCE-102-2015, CT-001/2015. México, DF: COFECE.

Corvoisier, Sandrine, and Reint Gropp. 2002. Bank concentration and retail interest rates. Journal of Banking & Finance 26: 2155-2189. [CrossRef]

Demirgüç-Kunt, Asli, and Vojislav Maksimovic. 1999. Institutions, financial markets, and firm debt maturity. Journal of Financial Economics 54: 295-336. [CrossRef]

Demsetz, Harold. 1973. Industry structure, market rivalry, and public policy. Journal of Law and Economics 16: 1-9. [CrossRef]

European Association of Co-operative Banks. 2004. Co-operative banks in Europe: values and practices to promote development. Brussels: European Association of Co-operative Banks (EACB).

European Union. 2004. Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentration between undertakings. Official Journal 31: 5-18.

Franks, Jeffrey, Valerie Mercer-Blackman, Randa Sab, and Roberto Benelli. 2005. Paraguay: Corruption, reform, and the financial system. IMF Special Issue Series. Washington, DC: International Monetary Fund. [CrossRef]

Fiordelisi, Franco, and Davide Salvatore Mare. 2014. Competition and financial stability in European cooperative banks. Journal of International Money and Finance 45: 1-16. [CrossRef]

Garbaczewski, Piotr. 2007. Information dynamics in quantum theory. Applied Mathematics & Information Services 1: 1-12. [CrossRef]

García Alba Iduñate, Pascual. 1994. Un índice de dominación para el análisis de la estructura de los mercados. El Trimestre Económico 61: 499-524.

Groeneveld, Hans, and Bouke de Vries. 2009. European co-operative banks: First lessons of the subprime crisis. International Journal of Cooperative Management 4: 8-21.

Hakenes, Hendrik, Iftekhar Hasan, Philip Molyneux, and Ru Xie. 2015. Small banks and local economic development. Review of Finance 19: 653-683. [CrossRef]

Hellmann, Thomas F., Kevin C. Murdock, and Joseph E. Stiglitz. 2000. Liberalization, moral hazard in banking, and prudential regulation: Are capital requirements enough? The American Economic Review 90: 147-165. [CrossRef]

Herfindahl, Orris C. 1950. Concentration in the U.S. steel industry. Dissertation. New York: Columbia University.

Hesse, Heiko, and Martin Čihák. 2007. Cooperative Banks and Financial Stability, IMF Working Paper 07/2. Washington, DC: International Monetary Fund.

Hirschman, Albert O. 1945. National Power and the structure of foreign trade. Berkeley: University of California Press.

Huangfu, Stella Xiuhua, Hongfei Sun, Chenggang Zhou, and Mei Dong. 2017. A Macroeconomic Theory of Banking Oligopoly. Meeting Papers No 191. Society for Economic Dynamics.

Jahn, Nadya, Jakob Maciag, and Andreas Pfingsten. 2015. Empirische Fakten zur Branchenstruktur der Kreditportfolios von Kreditgenossenschaften und ihrer zeitlichen Entwicklung. In: Zeitschrift für das gesamte Genossenschaftswesen. Stuttgart: Lucius & Lucius, vol. 2, pp. 97-110. [CrossRef]

Jappelli, Tullio, and Marco Pagano. 1994. Saving, growth, and liquidity constraints. Quarterly Journal of Economics 109: 83-109. [CrossRef]

Jarmuzek, Mariusz, and Tonny Lybek. 2018. Can good governance lower financial intermediation costs? IMF Working Paper 18/279. Washington, DC: International Monetary Fund.

Jensen, Michael C., and William H. Meckling. 1976. Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics 3: 305-360. [CrossRef]

Kalmi, Panu. 2007. The disappearance of cooperatives from economics textbooks. Cambridge Journal of Economics 31: 625-647. [CrossRef]

Kamp, Andreas, Andreas Pfingsten, and Daniel Porath. 2005. Do banks diversify loan portfolios? A tentative answer based on individual bank loan portfolios. DBB Discussion Paper Series 2: Banking and Financial Studies, No 03/2005. Frankfurt am Main: Deutsche Bundesbank.

Kick, Thomas, and Esteban Prieto. 2013. Bank risk-taking and competition: evidence from regional banking markets. Deutsche Bundesbank Discussion Paper 30/2013. Frankfurt am Main: Deutsche Bundesbank.

King, Robert G., and Ross Levine. 1993. Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics 108: 717-737. [CrossRef]

Kirchner, Ulrich, and Caroline Zunckel. 2011. Measuring portfolio diversification. Quantitative Finance 1: 1-9. [CrossRef]

Kwoka Jr., John E. 1977. Large firm dominance and price-cost margins in manufacturing industries. Southern Economic Journal 44: 183-189. [CrossRef]

Lee, Cassey. 2007. SCP, NEIO, and beyond. Working Paper Series 2007-05. Nottingham: Nottingham University Business School.

Lee, Jonq-Ying, and Mark G. Brown. 1989. Consumer demand for food diversity. Southern Journal of Agricultural Economics 21: 47-53. [CrossRef]

Lele, Uma. 1981. Co-operatives and the poor: A comparative perspective. World Development 9: 55-72. Leon, Florian. 2014. Measuring competition in banking: A critical review of methods. CERDI Working Paper 2014-12. Clermont Ferrand: CERDI

Levi, Yair, and Peter Davis. 2008. Cooperatives as the “enfants-terribles” of economics: Some implications for the social economy. The Journal of Socio-Economics 37: 2178-2188. [CrossRef]

Marfels, Christian. 1971. A guide to the literature on the measurement of industrial concentration in the post-war period. Zeitschrift fuer Nationaloekonomie 31: 483-506.

Martinez-Peria, Maria Soledad, and Ashoka Mody. 2004. How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America. Journal of Money, Credit, and Banking 36: 511-537. [CrossRef]

Maudos, Joaquin, and Juan Fernández de Guevara. 2004. Factors explaining the interest margin in the banking sectors of the European Union. Journal of Banking & Finance 28: 2259-2281. [CrossRef]

Maudos, Joaquin, and Amparo Nagore. 2005. Explaining market power differences in banking: A cross-country study. Working Paper Series 2005-10. Valencia: Instituto Valenciano de Investigaciones Económicas (Ivie).

Mazzarol, Tim, Delwyn Clark, Sophie Reboud, and Elena Mamouni Limnios. 2018. Developing a conceptual framework for the co-operative and mutual enterprise business model. Journal of Management & Organization 24: 551-581. [CrossRef]

McKillop, Donal, and John O.S. Wilson. 2014. Recent Developments in the Credit Union movement. Working Papers in Responsible Banking & Finance. WP No. 14-002. The University of St Andrews.

McKillop, Donal, Declan French, Barry Quinn, Anna L. Sobiech, and John O.S. Wilson. 2020. Cooperative financial institutions: A review of the literature. International Review of Financial Analysis 71: 101520. [CrossRef]

Melnik, Arie, Oz Shy, and Rune Stenbacka. 2008. Assessing market dominance. Journal of Economic Behavior & Organization 68: 63-72. [CrossRef]

Merton, Robert C. 1990. The Financial system and economic performance. Journal of Financial Services Research: 263-300. [CrossRef]

Mishkin, Frederik S. 1999. Financial consolidation: Dangers and opportunities. Journal of Banking & Finance 23: 675-691. [CrossRef]

Miller, John P. 1955. Measures of monopoly power and concentration: Their economic significance. In Business concentration and price policy, Edited by George J. Stigler, Chairman, National Bureau of Economic Research (NBER). Cambridge, MA: Princeton University Press, pp. 119-140.

Naceur Ben, Sami, and Mohammed Omran. 2011. The effects of bank regulations, competition, and financial reforms on banks' performance. Emerging Markets Review 12: 1-20. [CrossRef]

OECD. 2009. Competition and financial markets. Key findings. Paris: Organisation for Economic Co-operation and Development.

OECD. 2010. Competition, concentration, and stability in the banking sector. Working Paper DAF/COMP/WD(2010)9. Paris: Organisation for Economic Co-operation and Development.

Office of Fair Trading (OFT). 2004. Abuse of a dominant position. Understanding competition law. Competition Law Guidelines. London: Crown copyright.

Outreville de, François. 1998. Size and concentration patterns of the World’s largest Reinsurance companies. The Geneva Papers on Risk and Insurance 23: 68-80. [CrossRef]

Pfingsten, Andreas, and Kai Rudolph. 2002. German Banks’ loan portfolio composition: Market orientation vs. specialization. Discussion Paper 02-02. Institute for Kreditwesen. [CrossRef]

Poghosyan, Tigran. 2012. Financial intermediation costs in low-income countries: The role of regulatory, institutional, and macroeconomic factors. IMF Working Paper 12/140. Washington, DC: International Monetary Fund.

Rojas-Suarez, Liliana. 2016. Financial Inclusion in Latin America. Facts, obstacles, and Central Banks' policy issues. Discussion Paper IDB-DP-464. Washington, DC: Inter-American Development Bank.

Shannon, Claude E. 1948. A mathematical theory of communication. The Bell System Technical Journal 27: 379-423. [CrossRef]

Tabak, Benjamin Miranda, Solange Maria Guerra, and Rodrigo Andrés de Souza Peñaloza. 2009. Banking concentration and the price-concentration relationship: the case of Brazil. International Journal of Accounting and Finance 1: 415-435. [CrossRef]

Tirole, Jean. 1985. Asset bubbles and overlapping generations. Econometrica 53: 1499 – 1528.

Torre de la, Augusto, Alain Ize, and Sergio L. Schmukler. 2012. Financial Development and Latin America and the Caribbean. The road ahead. Washington, DC: World Bank.

Westley, Glenn D., and Sherrill Shaffer. 1997. Credit Union policies and performance in Latin America. IDB Working Paper No 292. Washington, DC: Inter-American Development Bank.

Williams, Pharis E. 2002. Energy and Entropy as the fundamentals of theoretical physics. Entropy 4: 128-141. [CrossRef]

World Bank. 2008. Finance for all? Policies and pitfalls in expanding access. World Bank Policy Research Report. Washington, DC: World Bank.

Zhou, Rongxi, Ru Cai, and Guanqun Tong. 2013. Applications of entropy in finance. A review. Entropy 15: 4909-4931. [CrossRef]