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Regulatory Changes and Financial Structure: The Case of Canada

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  • Christian Calmès

Abstract

This paper documents some stylized facts about the Canadian financial structure. I explore these empirical facts in the context of the Canadian financial legislation. I find that, over the 1990s, Canadian businesses became more heavily dependent on financial markets as their primary source of external funding. Data display a trend towards a more "market-oriented" financial system. The analysis suggests that this new trend started after the 1980 banking legislation amendments. The trend was considerably accentuated after the 1992 amendments. I construct a new series for the off-balance-sheet activities of Canadian banks that converts the non-interest income of banks into a credit equivalent. Combined with other evidence, this credit equivalent series suggests a healthy growth trend in banking activity. Financial institutions are broadening their business lines and participating more actively in the arrangement of market financing. Regarding direct finance, the data indicate that Canadian firms issue a substantial share of their bonds in the U.S. bond market. They also issue an increasing share of their stocks in the U.S. stock market. I conjecture that there is some form of incompleteness in the Canadian markets. A noticeable fraction of Canadian issuances in the U.S. involves riskier firms for which U.S. markets seem more mature.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 140 (2004)
Issue (Month): I (March)
Pages: 1-35

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Handle: RePEc:ses:arsjes:2004-i-1

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Keywords: Financial deepening; indirect finance; non-interest income; off-balance sheet activities; regulatory changes; securitization;

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References

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  1. Kevin J. Stiroh, 2002. "Diversification in banking: is noninterest income the answer?," Staff Reports 154, Federal Reserve Bank of New York.
  2. Freedman, C. & Goodlet, C., 1998. "The Financial Services Sector: Past Changes and Future Prospects," Technical Reports 82, Bank of Canada.
  3. John H. Boyd & Mark Gertler, 1995. "Are Banks Dead? Or Are the Reports Greatly Exaggerated?," NBER Working Papers 5045, National Bureau of Economic Research, Inc.
  4. Freedman, C., 1998. "The Canadian Banking System," Technical Reports 81, Bank of Canada.
  5. Franklin Allen & Douglas Gale, 2001. "Comparing Financial Systems," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511258, December.
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Citations

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Cited by:
  1. Vladimir Klyuev, 2008. "Real Implications of Financial Linkages Between Canada and the United States," IMF Working Papers 08/23, International Monetary Fund.
  2. Guidara, Alaa & Lai, Van Son & Soumaré, Issouf & Tchana, Fulbert Tchana, 2013. "Banks’ capital buffer, risk and performance in the Canadian banking system: Impact of business cycles and regulatory changes," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3373-3387.
  3. Jason Allen & Ying Liu, 2005. "Efficiency and Economies of Scale of Large Canadian Banks," Working Papers 05-13, Bank of Canada.
  4. Christian Calmès & Raymond Théoret, 2013. "Is the Canadian banking system really “stronger” than the U.S. one?," RePAd Working Paper Series UQO-DSA-wp022013, Département des sciences administratives, UQO.
  5. Christian Calmès & Raymond Théoret & François-Éric Racicot, 2014. "La titrisation aux États-Unis et au Canada," RePAd Working Paper Series UQO-DSA-wp032014, Département des sciences administratives, UQO.
  6. 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.
  7. Calmès, Christian & Théoret, Raymond, 2014. "Bank systemic risk and macroeconomic shocks: Canadian and U.S. evidence," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 388-402.
  8. Danny Leung & Terence Yuen, 2007. "Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries," Open Economies Review, Springer, vol. 18(2), pages 177-189, April.
  9. Jorge Roldos, 2006. "Disintermediation and Monetary Transmission in Canada," IMF Working Papers 06/84, International Monetary Fund.
  10. Christian Calmès & Ying Liu, 2005. "Financial Structure Change and Banking Income: a Canada-U.S. Comparison," RePAd Working Paper Series UQO-DSA-wp0302005, Département des sciences administratives, UQO.
  11. Nicolas Pellerin, 2008. "L'effet des activités hors bilan sur la rentabilité et la volatilité des revenus des banques canadiennes," RePAd Working Paper Series UQO-DSA-wp032008, Département des sciences administratives, UQO.
  12. Christian Calmès & Raymond Théoret, 2009. "Off-Balance-Sheet Activities and the Shadow Banking System: An Application of the Hausman Test with Higher Moments Instruments," RePAd Working Paper Series UQO-DSA-wp042009, Département des sciences administratives, UQO.
  13. Christian Calm¨¨s & Raymond Th¨¦oret, 2013. "Is the Canadian Banking System Really ¡°Stronger¡± than the U.S. One?," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 1-18, November.
  14. Christian Calmès & Raymond Théoret, 2011. "Bank systemic risk and the business cycle: An empirical investigation using Canadian data," RePAd Working Paper Series UQO-DSA-wp322011, Département des sciences administratives, UQO.
  15. Christian Calmès & Raymond Théoret, 2008. "Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ?," RePAd Working Paper Series UQO-DSA-wp042008, Département des sciences administratives, UQO.
  16. Christian Calmès & Raymond Théoret, 2009. "The Impact of Banking Deregulation on Canadian Banks Returns," RePAd Working Paper Series UQO-DSA-wp022009, Département des sciences administratives, UQO.
  17. Christian Calmès & Raymond Théoret, 2013. "The change in banks' product mix, diversification and performance: An application of multivariate GARCH to Canadian data," RePAd Working Paper Series UQO-DSA-wp012013, Département des sciences administratives, UQO.
  18. Calmès, Christian & Théoret, Raymond, 2013. "Market-oriented banking, financial stability and macro-prudential indicators of leverage," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 13-34.

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