A Strategic Approach to Cost Reduction in Banking - Achieving High Performance in Uncertain Times

The
main
difference
between
stock
and
mutual
companies
rests
with
who
controls
the
bank
and
receives
its
profits
(Rasmusen
1988).
A
stock
company
is
owned
by
its
stockholders,
who
control
(at
least
in
theory)
the
managers,
decide
how
to
distribute
profits,
and
are
free
to
sell
their
stocks
at
any
time.
On
the
contrary,
a
mutual
association
is
“owned”
by
its
members
who
are
also
its
depositors,
but
it
is
hardly
controlled
by
them.
Instead,
in
this
case,
managers
are
self&referential
and
thus
unlikely
minimizing
the
cost
of
banking
services
(Rasmusen
1988).
The
mutual
bank
could
well
be
seen
as
a
self&enforcing
contract
in
which
the
managers
provide
low&risk
banking
services
to
rational
but
ill&informed
savers
who
are
risk&averse
and
unprotected
by
deposit
insurance.
Depositors
who
are
unable
or
unwilling
to
monitor
bank’s
portfolio
prefer
mutual
banks
because
managers
there
have
stronger
incentives
to
choose
a
safe
portfolio.
...
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A Strategic Approach to Cost Reduction in Banking - Achieving High Performance in Uncertain Times