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A Model for the Interest Margin of a Risk-Neutral Bank. The Role of the Bank Orientation

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  • Marco Pedrotti

    (Dept. of Banking and Finance, University of Potsdam, Germany)

Abstract

This paper examines the impact of the bank orientation on classical banking business, distinguishing between shareholder and stakeholder banks, and analyzes the preconditions for positive social welfare effects from the existence of stakeholder banks. For this reason we develop a theoretical bank decision model based on the utility approach and focus on the determination of the interest margin. Vis-à-vis previous studies, we connect to the recent literature on the agency view considering the lessons from recent financial developments. Moreover, we study the influence of the social mission on the bank pricing strategy, merging these two different fields for the first time. The results highlight the fundamental role of a strict and prudential regulation of the social mission as well as of the existence of internal and external control mechanisms, in order to avoid a misuse of stakeholder banks for distorting aims, to increase the system stability and to reduce market failures. Therefore, a correct implementation of these aspects represents a precondition for a positive contribution of stakeholder banks to the social welfare.

Suggested Citation

  • Marco Pedrotti, 2014. "A Model for the Interest Margin of a Risk-Neutral Bank. The Role of the Bank Orientation," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 167-180, June.
    • Handle: RePEc:trn:csnjrn:v:3:i:1:p:167-180
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    References listed on IDEAS

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    Cited by:

    1. Edurkar, Ashok & Chougule, Dr.Dattatrya G., 2016. "Can Foreign Banks Reignite India’s Manufacturing, Domestic & Foreign Trade Growth with Application of Competitive Business Practices Models?," MPRA Paper 73462, University Library of Munich, Germany, revised 01 Sep 2016.
    2. Edurkar, Ashok & Chougule, Dr.Dattatrya G., 2016. "A Study of Financial Services provided by Foreign Financial Institutions (FFIs) Operating in India consistently during the period 2003-04 to 2012-13 with reference to India’s Foreign Trade," MPRA Paper 73553, University Library of Munich, Germany, revised 01 Jul 2016.
    3. Edurkar, Ashok & Chougule, Dr.Dattatrya G., 2016. "Application of Factor and Cluster Analysis for an evaluation of Business Practices Models of Foreign Banks," MPRA Paper 73536, University Library of Munich, Germany, revised 06 Sep 2016.
    4. Edurkar, Ashok & Chougule, Dr.Dattatrya G., 2016. "Perspectives of Foreign Trade subjected to financing by Foreign Financial Institutions (FFIs) using business practices models as derived by factor and cluster analysis Post RBI Road Map 2005," MPRA Paper 73453, University Library of Munich, Germany, revised 31 Aug 2016.

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    More about this item

    Keywords

    social welfare; stakeholder banks; shareholder banks; cooperative banks; savings banks; interest margin;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • P13 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Cooperative Enterprises

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