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Firms in the cooperative financial sector were created during the second half of the 19th century to provide their members with access to banking and insurance financial services. The philosophy behind their creation was to have servicing their members take precedence over financial profitability. In this beginning of the 21st century, the cooperative financial sector includes many major players of the financial system. This issue of the REF presents an overview of cooperative finance, takes up the major challenges it faces and questions its faithfulness to the values proclaimed. To do so, it has been divided into four parts. The first explains how this sector came into being and the values it embodies. A second part is devoted to the different players in banking and insurance and their roles. The third part analyses the governance of these players and the possible conflicts between necessary efficiency and respecting values. Finally, a last section outlines the stakes of the future facing cooperative finance, the race to expand, the regulatory difficulties, and digitalization.
The column on financial history treats the relationship between currency and protectionism in the United States after the Civil War and a "miscellaneous" article analyzes the role of eurodollars and shadow banking within the context of the international status of the dollar and the changes in the financial system.
publication : October 2019 348 pages
Financial cooperatives, especially in the banking and insurance sector, represent a significant market share in Europe. These companies were created, to provide solutions providing trust and solidarity to the people impacted by the Industrial Revolution. They survived the 20th century's chaotic developments. They played a major role in the constitution of the middle class during the post war boom, they kept committed to the wide spreading of progress. Their challenges are, at the beginning of the 21st century, to know how to keep their specificities in a world dominated by the race to size. Moreover they have to keep steadily acting for humanism to resist the dangers being reduced to a different way of conducting the business or to copy the profit driven operators.
The evolution of capitalism, from the crises in the middle of the 1970's, re-launched liberal ideals under the obvious modernity of the Ayn Rand style “libertarian” precepts and the neoliberal, monetarist rules of the “Chicago boys”. This gives all of its legitimacy to wonder about the alternative forms of this totalitarian mainstream by considering mutual funds and cooperatives and their shared origin, “mutualism”. It is and remains one of the first movements of French solidarity the intricacy of ideas and founding ideals of which began in Antiquity to lead to a slow gestation to the 19th century until the realities of this new millennium. Cooperatives and mutual funds aim at just one thing: getting people to realise that hasty judgement or simplification have no place in this original world of organisations of the social and solidarity economy, inasmuch as you can place this set of organisations like genuine “heterotopias” in the Foucauldian sense (Michel Foucault), in this economic and social universe of the 21st century that is globally hostile to them.
Mutuality emerged in the 19th century to fund and facilitate industrial and social revolution and contribute to the emancipation of the masses, and it remains just as relevant today. By applying the three core principles of the cooperative model – freedom, responsibility and mutual support – to the world of banking, it has proven its ability to reconcile democracy with investment, collective impetus with individual initiative, financial performance with social responsibility, and everyday quality of service with a responsible long-term view.
The new strategic plan being introduced by Crédit Mutuel Alliance Fédérale aligns perfectly with these principles and is structured around three key priorities: set the benchmark for relationship banking in a digital world (by using technology to build closer human relationships rather than replace them, and by asserting our regional roots), be a bank committed and relevant to the new world (in the sense of building sustainable, protective and respectful relationships with customers and members, and accepting our social and environmental responsibilities), and be an innovative, multi-service bank (by meeting all the needs of our customers and developing services that facilitate and streamline customer journeys). All of which underline the fact that mutuality today is more relevant than ever.
The specific model of mutual insurance companies lead them to carrying a long term investment policy which contributes significantly to the financing of companies and to the financing of the economy. More specifically, mutual insurance companies' governance and their important part of non-life insurance activities are likely to generate long and stable liabilities. The current European regulation however does not encourage this approach while the European Union is now facing a long-term investment deficit. The general revision of the Solvency II Directive in 2020 must be the opportunity to correct this situation.
European mutual/cooperative insurers benefit consumers, businesses and wider society through their focus on providing value to their members/policyholders rather than to external investors. The model has seen a significant increase in market share in the past decade, enhancing policyholders' long-term security and providing socio-economic values to the wider European community. This paper uses the results of a detailed longitudinal study of European mutual/cooperative insurers' key market indicators including types of business, premium income, assets and overall market share to examine the value of the mutual/cooperative insurance business model in the European context and identify where the current European system does not adequately support structural diversity.
Different approaches in EU Member States and EFTA countries towards diverse legal models within the insurance sector have led to inconsistencies in the recognition and treatment of mutual/cooperative insurers. The principle European insurance regulatory infrastructure, Solvency II, does not fully reflect the principle of proportionality. This is identified as having a particularly profound impact on SME insurers in Europe, around half of which are mutual in nature. Regulatory improvement is therefore identified as the dominant priority for mutual insurers in Europe.
Pension systems in Europe tend to be organised with a three pillar framework: a first pillar of « pay-as-you-go » universal pensions universal; a second pillar of pension funds managed by professional organisations and a third pillar with individual savings accounts. Professional pension funds managed by professional associations in coordination with workers union have proved to be resilient to financial crisis and are adaptive to the evolution linked with the ageing population phenomenon. As capitalisation techniques tend to be more popular in France, the experience of pension funds with a paritary governance should be taken into consideration when reforming the pension system.
More than ten years ago, the so-called "sub-prime" crisis in the United States has turned into a global systemic crisis, which has destabilized the entire banking system. The resulting mistrust in banks has rekindled interest for diversity in legal and organizational forms of financial institutions. Conversely, this financial turmoil has revealed the systemic risk resulting from a process of convergence towards the single model of joint-stock bank. For this reason, cooperative banks have gained in credibility, especially because they have shown a better resistance to this crisis. However, this general conclusion masked some differences: huge losses affected the French cooperative banks, which have transformed into large universal banking groups after experiencing a strong hybridization process. This article aims to depict, ten years later, the situation of the three French cooperative banking groups, compared to the main French joint-stock banks listed on the stock-market (BNP Paribas and Société Générale). We first recall how the hybridization process, considered as a source of performance before 2008, has turned into a weakness, and how the French cooperative banks have reacted afterward. In the second part of this paper, we perform a comparative analysis using usual financial analysis statement and ratios, in order to better understand the importance and the role of the French cooperative banking groups.
The financial strategies of insurance companies reflect their investment policy and the coverage of their insurance liabilities. In an high concentration environment where creation of groups covering different branches (life, non-life, health) is a common approach, specialized mutualist structures have chosen another way. The diversification and, by extension, internationalization have never been a long-term objective for specialist mutualist structure. Even if these elements appear for many insurers as essential in view of the regulatory pressure, critical size concept, possible economies of scale to maintain their competitive position, some insurance companies have not chosen to consider a market but continue to serve their membership. In this context, this article aims to give the highlights of the investment policies of specialized mutualist structures. First, we define the characteristics of the specialized mutualist structures. Then we expose the constraints impacting their financial strategy. Finally, we expose their freedoms of action and some elements of investment policy.
Cooperative banks have reinvested their democratic governance since the early 2000s. In particular, they have developed strategies aimed at their members in order to increase their number and commitment, in a context gradually marked by environmental pressures on the professionalization and independence of boards. Beyond the quantitative effects, this member mobilization has stimulated the construction of new indicators to characterize the activity and the CSR and cooperative articulation. It thus had an enabling effect on cooperative banks. However, the insufficient training of employees about cooperatives at the various levels of the organization hamper member mobilization and its effects in terms of creating resources for cooperative banks and their territory, and building a common professional community.
Mutual and cooperative finance is based on a specific status that is out of step with the traditional shareholder structure. However, this differentiation has so far not been based on indicators themselves specific measure of value creation. The characterization of the expectations of customers of co-operative bank shows their diversity of behavior and expectations. Different types of performance are expected: financial, commercial, territorial and community. The analysis of annual reports of central bodies of cooperative banking groups and their regional entities confirms this diversity but fails to provide generalizable and repeatable indicators for measuring value creation for members. The cooperative financial sector cannot durably overcome this imperative at the risk of becoming financial institutions like others.
We compare the resistance of cooperative and non-cooperative banks from 2005 to 2014 based on Z-score analysis for 113 European banks. Our study shows that cooperative banks are more robust during crisis episodes (2008-2009 and 2011-2012). Systemic banks are less robust over this period, including during crises. However, despite lower capacities of resistance, systemic cooperative banks are significantly more robust than systemic non-cooperative banks. In contrast, non-systemic cooperative banks are not significantly more robust than non-systemic non-cooperative banks.
Mutual banks have incorporated a relatively simple principle in their creation: coming together natural and legal persons who together guarantee the loans granted individually to members. But in the 1980-1990s, they decided to strongly expand and diversify their activities until becoming large universal and international banking groups, thus singling out the conventional banks and sometimes forgetting their primary missions and their purpose. However, they continue to invest in locally responsible projects. Also, the values and the mode of governance of the mutual banks should in principle make them more virtuous. What is it really about the very current problem of tax evasion and money laundering? The article explains how mutualist values and governance are supposed to guarantee responsible behavior in the face of the current problem of tax evasion and money laundering. It studies the place and behavior of mutual banks in financial and tax criminal practices.
In the light of the financial crisis, we question the cooperative values to review the business model and the role of banks. To answer in the affirmative, it is necessary to question Corporate Social Responsibility (CSR): is CSR able to bring about a reconciliation between Friedman's “shareholder value” and Freeman's “stakeholder value”? To answer this question, we join the current of thought of the neo-institutional theory to mobilize DiMaggio & Powell's three types of isomorphism - coercive, mimetic and normative; then we question the banking model through the institutionalization of CSR in cooperative banks. We then study the case of the Banques Populaires as they build their strategy upon social responsibility in cooperative firms, which can be understood as a performative discourse. The rapprochement - or the desire of rapprochement - of CSR with the cooperative identity allows "to operationalize [their] cooperative and CSR commitments in [their] internal practices". We conclude on the need to be more proactive in permanently normalizing responsible practices in banks and to be eventually able to talk of normative CSR.
The objective of this study is to analyze comparatively the remunerations of the leaders of the six major French banking groups. The results indicate that the legal status explains the remuneration of the leaders of the French banking group. Limited liability banking groups are more generous than mutual banks in executive compensation. In addition, the remuneration is sensitive to the characteristics of the board of directors and the risk of the banking groups.
In an environment marked by radical changes; asset management companies must be able to provide mutual insurers with asset management and related services that are both efficient and respectful of their values. This expertise must be offered within a framework of partnership aiming at proposing accessible financial solutions to all these institutions, whoever they may be. This offer should also provide them with technical and human means that are essential for the well implantation of these solutions while remaining in compliance with the principle of transparency enshrined in the Solvability 2 Directive. Thanks to a complete range of services able to cover the global perimeter of assets, mutual insurers can benefit from a certain uniformity of methods. This complete range of services also allows mutual insurers to have specificities of their own be taken into consideration while preserving their independence and autonomy. This respect of mutualist values should also comply with management solutions that are consistent with principles of responsible and sustainable finance (stakeholders and sustainable development). The support offered by asset management companies is based on the establishment and proper control of a value chain in terms of asset management and responsible finance. This allows asset managers to address the concerns and ambitions of mutual insurers.
The mutualist movement is anchored in the history of the Social Solidarity Economy (SSE) where via their social purpose it seeks to convey a strong societal commitment. In parallel with this movement, Corporate Social Responsibility (CSR) has also developed to become normative. The reinforcement of these societal practices has highlighted the importance of stakeholders in order to benefit from their expertise, feedback and opinions in the overall dynamics of the institution. In the mutual movement members are essential to the good organization of the entity: by statute, members are present at all decision-making stages. The role in the mutuals is here questioned with regard to current societal changes: citizens seek more transparency, meaning and interactivity within committed organizations. The digitization of these same mutuals appears as a vector of reinforcement in the search for a better societal interaction with their stakeholder. Here, through two case studies (Diffuz for the Macif and Maif Social Club for the Maif), we highlight the organizational changes underway in the interaction and legitimization offered by the tools of digitization of mutuals with their members.
Cooperative banking groups combine the advantages of a decentralised network of independent banks and a central organization that helps independent cooperative banks to realize economies of scale. This article describes the organizational structure of the German Cooperative Banking Group. Cooperative banks in Germany are independent entities, but cooperate to get reliable access to services like corporate banking or liquidity and products like mutual funds and insurances. On the other hand the joint institute protection scheme requires some collaboration in the group's risk management. Nevertheless, the group's central bodies do not have the authority to issue instructions to the banks. Current challenges like regulation and digitalisation create economies of scale. Low interest rates put pressure on the banks returns. Cooperative banks have reacted by merging, implementing cost reductions on the primary and central level and by introducing new digital solutions for their customers and in their back-offices.
Non for profit insurance companies as mutual organisations or “paritary” organisations managed by workers and employers unions is often referred as the cornerstone of the European Welfare system and esp. in France. Since 30 years, non for profit insurance organisations have made huge efforts to comply with new solvency rules, competition rules and fiscal harmonisation. Meanwhile the development of Social security systems organised by the State has entered in direct competition with them and often prevented them from further development. Today it is hard to see the difference between an insurance company and a mutual organisation in their products, rates, solvency and if they want to exist not only as a curiosity. Is it a curiosity inherited from the social history? Or is it the future of solidarity? In the Museum of Finance, they should define a strategic vision in order to pursue a proactive development.
This article recalls the specificities of mutual insurers and the reasons for their success, which is largely due to a very strong customer culture deployed within the framework of an original governance model based on the customer / member relationship. While this model does not completely protect mutual societies from financial crises, the long-term focus allows it to decide out of financial markets pressure. Faced with the challenges posed by regulation and the appearance of TechFins, it is important for mutual insurers to maintain a size that provides great agility. The mutualist model in line the expectations of today's and tomorrow's society has serious advantages for the future.
To a large extent, the international financial system has been – and continues to be – shaped by US public and private institutions. The aim of this article is to show that the path taken by the contemporary financial system accentuates the dominance of the US dollar in the various functions of money, including the billing and the settlement of international trade. The article is structured around two components, namely the demand (needs) for financial instruments, and the supply (the availability) of these instruments. The first part studies the needs arising from the abundant savings of transnational firms, while the second considers the financial techniques developed during the twentieth century, which are necessary for the multiplication of payment instruments in dollar. Eurodollars and shadow banking are then seen as mutations produced by the international monetary system and essential for the international status of the US dollar.