Social banks (SBs) claim that their values and practices distinguish themselves from traditional banks insofar as they prioritise social goals over financial ones. The main goal of SBs consists in serving community-oriented projects and social enterprises, which put the emphasis not only on financial returns, but also – and often as a priority – on social aims (Borzaga and Defourny, 2001). Their foundational principles entrench three dimensions (Becchetti et al., 2011; Benedikter, 2011; San José et al., 2011; Weber and Remer, 2011). First, profitability maximisation is not regarded as an objective per se, but rather it is viewed as a means to attain economic sustainability. In addition, profits should be fairly redistributed among stakeholders through adequate governance mechanisms. Second, SBs focus on the financing of the “real economy”, in particular the social and solidarity-based economy, through transparent, prudent and simple financial intermediation principles and by systematically rejecting speculative financial transactions. Third, SBs aim to encourage a community of values by matching the two sides of financial intermediation. Existing micro-level evidence indicates that a reciprocity mechanism may be at work (Cornée et al., 2012; Cornée and Szafarz, 2014). On the funding side, socially-minded investors are inclined to make a financial sacrifice provided that SBs invest in projects that correspond to their values. On the lending side, SBs channel the financial sacrifices made by its funders to motivated borrowers by offering favourable credit conditions to the latter (e.g. below-market interest rate). In turn, motivated borrowers who share the social bank’s values reciprocate its gesture.
Our study examines whether and the extent to which these “virtuous” principles translate themselves into actual deeds. Our investigation relies on a rich European dataset consisting of 6,500 European banks, and our observation window covers the 1999-2013 period. Of this large group of banks, we identify around 30 banks as SBs. We aggregate micro-level bank balance sheet data (at unconsolidated level) from Bankscope provided by Bureau van Dijk. Bankscope is a standard source for institutional comparisons (e.g. shareholder versus stakeholder banks) at the international level, especially with non-listed banks (Gambacorta, 2005; Ashcraft, 2006; Iannotta et al., 2007; Ferri et al., 2014).
Our preliminary results obtained via panel data econometrics are threefold. First, an array of evidence shows that, as compared to their equivalents, SBs promote to a greater extent stakeholder value (e.g. lower dividend payout ratio, lower management remuneration) and contribute more to financial stability (higher z-score). Second, SBs adhere more to uncomplicated financial intermediation principles than their counterparts, in particular when we inspect the non-interest income share in gross revenue. However, a balance sheet analysis only partially confirms this view and highlights over-liquidity issues. Third, various pieces of evidence suggest that reciprocity is determining in the functioning of SBs: i) SBs benefit from a lower cost of funding, ii) they charge lower interest rate on their borrowers, and iii) they exhibit sounder loan portfolios (i.e. lower loan loss and loan provisioning ratios) than their counterparts. Interestingly, stakeholder banks, such as credit cooperatives and savings banks, generally occupy an intermediate position between SBs and commercial banks in our results. Finally, asset growth rates prove to be significantly higher for SBs, in particular since the outbreak of the 2008 financial crisis.
Keywords: Comparative Analysis, Social banks, Commercial Banks, Cooperative Banks. JEL Codes: G20, L33.
