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Do spatial dependence and market power matter in the diversification of cooperative banks?

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  • Carmelo Algeri
  • Antonio F. Forgione
  • Carlo Migliardo

Abstract

This study examines the determinants of cooperative banks' diversification proclivity, with consideration of the spatial dependence effect. The empirical analysis demonstrates that Italian cooperative banks operate as a network with significant spillover effects that should not be ignored. Indeed, local banks compete in the same market segment, and any shift in their diversification strategy has a cascading effect on neighbouring cooperative banks as a result of customer migration. Finally, we observe that an increase in bank market power results in a decline in local bank lending activity.

Suggested Citation

  • Carmelo Algeri & Antonio F. Forgione & Carlo Migliardo, 2022. "Do spatial dependence and market power matter in the diversification of cooperative banks?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(3), November.
    • Handle: RePEc:bla:ecnote:v:51:y:2022:i:3:n:e12204
    DOI: 10.1111/ecno.12204
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