Market Structure and Financial Stability: the Interaction between Profit-Oriented and Mutual Cooperative Banks in Italy

Abstract

In this study, we analyze the relation between market structure and financial stability both theoretically and empirically by considering two types of agents: profit-oriented banks and mutual cooperative banks in the context of Italy. The main findings show that under the condition that mutual cooperative banks are not dominated by borrowers, there is an inverted U-shaped relation in which a less concentrated market structure increases stability for both types of banks but a more concentrated market structure reduces it.