Back to the Future of Alternative Banks and Patient Capital

Saturday, June 25, 2016: 9:00 AM-10:30 AM
246 Dwinelle (Dwinelle Hall)
Kurt Mettenheim, São Paulo Business School, Getulio Vargas Foundation, São Paulo, Brazil
Olivier Butzbach, Second University of Naples, Naples, Italy
This paper will explore how savings banks, cooperative banks, and development banks were founded as social reactions of self-defense in the 19th century, accumulated patient capital but suffered political capture in the early 20th century, and realized powerful competitive advantages as liberalization and new technologies changed their industries in the late 20th and early 21st century. Theories of banking and institutional foundations of competitive advantage help explain this anomaly for contemporary approaches that define banks as profit-maximizing financial firms. Evidence from history, balance sheets, and 36 difference of means tests of 7,581 commercial banks 1,693 cooperative banks and 70 government banks from 2006-12 confirm recent evidence that alternative banks make better banks. Although reforms have marginalized alternative banks in liberal market economies, liberalization produced back to the future modernization of patient capital practices at alternative banks in coordinated market economies. The paper explores the implications of these findings for finance and society in terms of banking theory, financialization, inequality, and social economic change in advanced and developing countries.