Cooperatives versus traditional banks: the impact of interbank market exclusion

Abstract

In this paper, we analyze the desirability of allowing cooperative banks to participate in the interbank market in Chile. We find that it is desirable, as long as the quality of the cooperative’s governance is not too deficient relative to traditional commercial banks. On the one side, when cooperative banks do participate in the interbank market, both, the probability of financial crisis and the volatility of GDP, raise; but on the other, because the cooperative’s inclusion generates large efficiency gains in the financial sector, GDP and aggregate welfare substantially increase. We conclude that there is no policy reason to exclude cooperatives from the Chilean interbank market. Key words: