European cooperative banks: Exploring organizational differences and efficiency outcomes

We study how organizational structure shapes economies of scale, economies of scope, market power, and credit quality in European cooperative banking. Using 18,033 bank-year observations for 2258 Euro-area cooperative banks in 10 countries (2013–2023), we estimate multiproduct cost and profit functions to derive economies of scale and scope and a Lerner index measure of market power, and relate these outcomes to network versus integrated structures (IPS, ICN, CCG). More integrated models are associated with stronger cost-side economies of scale and scope and higher market power, whereas network and IPS banks exhibit larger profit-side economies of scale. The determinants of these outcomes differ across organizational forms, consistent with heterogeneous business strategies. Estimates show that moves from network to ICN and to IPS are associated with higher cost-side scale economies and market power, with IPS transitions also linked to improved profit-side scale economies. Credit-risk results are mixed, but IPS transitions are associated with lower non-performing loan (NPL) ratios. Overall, cooperative banking is both distinct from commercial banking and internally heterogeneous, cautioning against one-size-fits-all evaluations.