Regulation and the Crisis: The Efficiency of Italian Cooperative Banks

In this paper we analyze the impact of the current financial crisis on the determination of technical efficiency in a sample of Italian small banks, highlighting the interaction of the crisis with different regulatory regimes existing for cooperative banks (CB’s) and other banks. We find that the crisis has a negative impact on efficiency, more so for CB's. This is to be expected, as the CB's principle of external mutuality and their branching regulations are likely to locate them in less performing areas. In accordance with this prior, the differential impact of the crisis attenuates or vanishes when we include in the production set some indicators of local environment (GDP per capita). Correspondingly, we find novel evidence in favour of the “bad luck” hypothesis suggested by Berger and De Young (Journal of Banking and Finance, 1997).