The Role of Local Banks’ in the Modern Banking System: an Italian Case Study

Based on the network theory and its applications in finance, the study examines how a network between Italian local banks has improved the members‟ performance and strengthened the quality and innovation of their banking services. By focusing on economic interactions and financial performance, the paper reports and analyses the results of a banking network established in 1985 among various Italian small banks. The paper identifies two main findings. First, it argues that bank network improve the economic performance and corporate decision of the members. The second finding is the network‟s ability to reinforce the competitive positioning of local banks in the distributing process by improving quality and adding innovation to the banking products and services. Providing both theoretical and practical insights into the opportunity of a local bank to be a member of a network - considered as a collection of local banks (nodes) and links between the nodes, the study shows that network strategy could be useful for small financial intermediaries to enhance their role and support their competitive advantage in the modern banking system.