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Is the Canadian Banking System Really ¡°Stronger¡± than the U.S. One?

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Author Info

  • Christian Calm¨¨s

    ()
    (D¨¦partement des sciences administratives, Universit¨¦ du Qu¨¦bec en Outaouais; Chaire d¡¯information financi¨¨re et organisationnelle (UQAM),Canada)

  • Raymond Th¨¦oret

    (D¨¦partement de finance, Universit¨¦ du Qu¨¦bec ¨¤ Montr¨¦al, ¨¦cole des sciences de la gestion; Chaire d¡¯information financi¨¨re et organisationnelle (UQAM),Canada)

Abstract

The Canadian banking system is considered one of the ¡°best¡± in the world (Bordo et al., 2011). To examine this issue, this paper compares the risk-return trade-off of Canadian and U.S. banks in the context of market-based banking. It is found that non-interest income is actually more volatile in Canada, essentially because Canadian banks are more involved in trading and capital markets business lines than their U.S. peers. Even though U.S. banks are more exposed to securitization, which contributes to increasing bank risk (Calomiris and Mason, 2004), the analysis here does not conclude that the Canadian banking system is performing significantly better. On one hand, Canadian banks do better in downturns; on the other hand however, depending on the statistics, U.S. banks tend to benefit more from the transition to market-based banking.

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Bibliographic Info

Article provided by Better Advances Press, Canada in its journal Review of Economics & Finance.

Volume (Year): 3 (2013)
Issue (Month): (November)
Pages: 1-18

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Handle: RePEc:bap:journl:130401

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Related research

Keywords: Bank performance; Market-oriented banking; Securitization; Non-interest income; Financial stability;

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References

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  1. Calmès, Christian & Liu, Ying, 2009. "Financial structure change and banking income: A Canada-U.S. comparison," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(1), pages 128-139, February.
  2. Calmès, Christian & Théoret, Raymond, 2010. "The impact of off-balance-sheet activities on banks returns: An application of the ARCH-M to Canadian data," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1719-1728, July.
  3. Franklin Allen & Douglas Gale, 2004. "Competition and financial stability," Proceedings, Federal Reserve Bank of Cleveland, pages 453-486.
  4. John H. Boyd & Mark Gertler, 1994. "Are banks dead? or, are the reports greatly exaggerated?," Working Papers 531, Federal Reserve Bank of Minneapolis.
  5. Pennacchi, George G, 1988. " Loan Sales and the Cost of Bank Capital," Journal of Finance, American Finance Association, vol. 43(2), pages 375-96, June.
  6. Cardone-Riportella, Clara & Samaniego-Medina, Reyes & Trujillo-Ponce, Antonio, 2010. "What drives bank securitisation? The Spanish experience," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2639-2651, November.
  7. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
  8. Jason Allen & Ying Liu, 2007. "Efficiency and economies of scale of large Canadian banks," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 225-244, February.
  9. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2012. "How does bank competition affect systemic stability ?," Policy Research Working Paper Series 5981, The World Bank.
  10. Clark, Jeffrey A & Siems, Thomas F, 2002. "X-Efficiency in Banking: Looking beyond the Balance Sheet," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 987-1013, November.
  11. Liu, Ying & Papakirykos, Eli & Yuan, Mingwei, 2006. "Market Valuation and Risk Assessment of Canadian Banks," Review of Applied Economics, Review of Applied Economics, vol. 2(1).
  12. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
  13. Hatice Uzun & Elizabeth Webb, 2007. "Securitization and risk: empirical evidence on US banks," Journal of Risk Finance, Emerald Group Publishing, vol. 8(1), pages 11-23, January.
  14. Christian Calmès, 2004. "Regulatory Changes and Financial Structure: The Case of Canada," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(I), pages 1-35, March.
  15. Stiroh, Kevin J. & Rumble, Adrienne, 2006. "The dark side of diversification: The case of US financial holding companies," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2131-2161, August.
  16. Brent Ambrose & Michael LaCour-Little & Anthony Sanders, 2005. "Does Regulatory Capital Arbitrage, Reputation, or Asymmetric Information Drive Securitization?," Journal of Financial Services Research, Springer, vol. 28(1), pages 113-133, October.
  17. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
  18. Stiroh, Kevin J., 2006. "A Portfolio View of Banking with Interest and Noninterest Activities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1351-1361, August.
  19. Charles Calomiris & Joseph Mason, 2004. "Credit Card Securitization and Regulatory Arbitrage," Journal of Financial Services Research, Springer, vol. 26(1), pages 5-27, August.
  20. Lepetit, Laetitia & Nys, Emmanuelle & Rous, Philippe & Tarazi, Amine, 2008. "Bank income structure and risk: An empirical analysis of European banks," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1452-1467, August.
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