When Transformation Fails: The Demise of the Hungarian Cooperative Banks and the Fragility of Transformative Economies in Central and Eastern Europe’ – Zoltán Gál’s book chapter has been published.
Historically, cooperative banks have been instruments of financial inclusion and regional development: by virtue of member ownership and local embeddedness, they recycle savings into community lending and balance financial viability with social justice and sustainability. Such a dual-bottom-line ethos aligns closely with the transformative economy paradigm, which emphasises equitable wealth distribution, environmental stewardship, and community resilience. A core insight from cooperative banking research is that local information advantage enables well-embedded cooperatives to compete effectively even in highly competitive markets, whereas expansion without maintaining this embeddedness often erodes informational advantages, increases risk-aversion, or accelerates internal demutualisation.
In Hungary, an EU member state in Central and Eastern Europe, this transformative potential was largely dissipated. Between 2013 and 2020, an autocratic government characterised by economic populism and cronyism forced the integration of more than 120 cooperative banks into the state-controlled Takarékbank, dismantling democratic governance and severing local economic ties. Rather than nurturing cooperative banks as agents of local empowerment and sustainable economic transformation, Hungary’s leadership instrumentalised them to build a state-aligned banking structure, subordinating mutual principles to a centralised and populist financial agenda.
Empirical analysis of 137 cooperative and demutualised banks shows clear institutional divergence: cooperatives embedded in poorer regions tended to become passive investors, while growth-oriented cooperatives that expanded into urban markets lost their informational advantage and accumulated weaker loan portfolios. Instead of harnessing cooperatives as vehicles for transformative economies, Hungary’s top-down restructuring reinforced financial concentration and extinguished a 130-year tradition of mutual banking, illustrating the dangers of subordinating community-based finance to nationalist political projects. The Hungarian experience serves as a cautionary tale: without protective regulation and democratic governance, cooperative banks can be stripped of their social mission and absorbed into centralised state-capital alliances that contradict the goals of transformative economies.
Published in the Transformative Economies – Spatial and Societal Perspectives.
https://link.springer.com/chapter/10.1007/978-3-032-25298-2_14