The paper discusses the issue of Polish cooperative bank restructuring in the light of certain institutional aspects of the system. The instruments of agency theory and the new institutional economics theory have been applied to analyze the true objectives of cooperative banks and the rationale behind them. This includes an analysis of the management's interests as well as owner behaviour. The conclusion is that the institutional and human aspects of the present cooperative banking system, such as low involvement by members (hence poor corporate governance) and inadequate "external" monitoring by managers, may render these banks at a disadvantage in competition with other financial intermediaries. Under the circumstances, the progress of cooperative banking is determined by the general development of the Polish banking sector, the growing pressure of competition and a firm stance by the government and other regulators in demanding the necessary changes.