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. .
