1. Alternatives within an Isomorphic Field: Theorizing and Measuring Heterogeneity in Italian Banking, 1994-2012

The 2007-08 global banking crisis has led to frantic soul searching among economists, regulators, and policy-makers, to find solutions to the unsustainable levels of risk associated with the then-dominant business model in banking. One core problem was identified as the lack of heterogeneity in the banking industry – in terms, precisely, of the coexistence of various business models tied to multiple organizational forms. Symmetrically, one of the avenues for reform, oft advocated but not yet undertaken, has been to promote or restore heterogeneity or plurality in banking. This programme is in synch with the idea that economic systems contain “alternatives within” – i.e. multiple institutional paths, organizational forms, practical arrangements that exist alongside dominant ones and can provide, when needed, a welcome alternative to the failed dominant model. Theorizing and identifying alternatives within, however, is harder than it appears at first. In banking, a few attempts have been made to come up with “heterogeneity indicators”. Despite the sound intent behind these contributions, we show here that such proposed indicators present serious theoretical misgivings.  Building on an innovative statistical treatment of longitudinal data on Italian banks, spanning over twenty years, this paper aims at furthering our conceptualizing of “alternatives within” a very isomorphic field, the banking industry.