With this paper Bruno De Menna won the 9th edition of the EACB Award for Young Researchers on Co-operative Banks. He received his price during a ceremony organised on the occasion of the EACB event Apropos Coop Banking "The Future of the Co-operative Business Model".
A Belgian national, Bruno De Menna graduated in economics from HEC-Université de Liège and the Université Catholique de Louvain. After having been for 3 years SME Policy Adviser at the Mairie de Toulouse and having conducted analysis for a French NGO on the use of crypto-currencies to scale up the capacity of local businesses, he undertook a Ph.D in economics at Sciences Po Toulouse analysing European monetary policy since the subprime crisis. The last chapter of his thesis is dedicated to the impact of relationship lending on the performance of European cooperative banks. Member of the think tank BSI Economics, he joins the OECD in 2021 as a Junior Economist/Policy Analyst at the Centre for Entrepreneurship, SMEs, Regions and Cities (CFE) where he analyses how access to (alternative) finance could improve SME sustainability in OECD countries.
Financial theory indicates that low interest rates hamper credit risk and profitability, two interrelated components of banks' balance sheets. Using a simultaneous equations framework, we investigate the effects of euro area monetary easing on cooperative banks' performance depending on their commitment to relationship lending. First, we find no evidence of a risk-taking channel of monetary policy for weak relationship cooperative banks. Further, the profitability of strong relationship cooperative banks is more severely hit in a low interest rate environment than that of weak relationship cooperative banks. This raises issues about the middle-term durability of relationship lending when rates hold ``low-for-long.'' Finally, non-cooperative banks and strong relationship cooperative banks both increase credit risk under accommodating monetary policy. However, we suggest that these similarities do not occur for the same reasons: while non-cooperative banks prioritize profitability through higher credit risk when interest rates fall, strong relationship cooperative banks instead increase their capital buffers to ensure credit access to their customers, which mainly comprise small businesses and high-risk firms.