Title: From shareholders to stakeholders finance: a more sustainable lending model

Authors: Giuseppe Coco, Giovanni Ferri

Addresses: Department of Economics and Mathematics, University of Bari, Via C. Rosalba 53, Bari 70124, Italy. ' Department of Economics and Mathematics, University of Bari, Via C. Rosalba 53, Bari 70124, Italy

Abstract: Focusing on shareholder value (SHV) maximising banks vs. stakeholder value (STV) maximising banks, we ask: Why do they coexist? What does the recent crisis suggest for their respective sustainability? On the first, we conclude STVs – often cooperatives, catering also for parties other than shareholders – may superiorly manage the conflict of interests between depositors and bank owners and also strengthen borrowers| screening/monitoring. Accordingly, STVs should specialise in traditional intermediation, SHV in financial innovations. Next, we notice that the past financial innovation transformed the banking model from |originate to hold| (OTH) to |originate to distribute| (OTD). Knowing ex ante, they would immediately securitise originated loans on financial markets, OTD banks lowered their credit standards. Thus, the OTD model proved unsustainable. Since STV (SHV) stuck prevalently to OTH (moved to OTD), the crisis suggests STV are more sustainable. This contrasts with the prejudice against STV banks, often described before the crisis as outdated and inefficient.

Keywords: banks; banking; sustainable lending; shareholder value; stakeholder value; financial crises; relationship lending; loans; maximisation; cooperatives; conflict of interests; depositors; bankers; borrowers; screening; monitoring; borrowing; intermediation; innovation; originate to hold; originate to distribute; distribution; loan securitisation; financial markets; credit standards; inefficiency; sustainability; sustainable development; sustainable economy.

DOI: 10.1504/IJSE.2010.033399

International Journal of Sustainable Economy, 2010 Vol.2 No.3, pp.352 - 364

Published online: 02 Jun 2010 *

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