15th Annual Meeting of the German Finance Association (DGF)


Abstract

Why do specialized banks succeed? An empirical investigation of the credit business of cooperative and savings banks

Böve, Rolf; Andreas, Pfingsten

There is empirical evidence that specialization in lending leads on average to lower loan loss provisions and a higher profitability. In this paper we examine whether a better monitoring quality and/or lending to industries with lower loss rates are able to explain these results. The main results are as follows: Specialized banks show a lower ratio of actual to expected losses, i.e. they possess a higher monitoring quality than diversified banks. Specialized cooperative banks particularly lend to low-risk industries. The level of specialization has a stronger explanatory content with respect to the monitoring quality than monitoring expenses.
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