Efficiency and Economies of Scale of Large Canadian Banks
AbstractThe authors measure the economies of scale of Canada's six largest banks and their cost-efficiency over time. Using a unique panel data set from 1983 to 2003, they estimate pooled translog cost functions and derive measures of relative efficiency and economies of scale. The disaggregation of the data allows the authors to model Canadian banks as producing multiple outputs, including non-traditional activities. Given the long time span of the data set, they also incorporate technological and regulatory changes in the banks' cost functions, as well as time-varying bank-specific effects. The authors' model leads them to reject constant returns to scale. These findings suggest that there are potential scale benefits in the Canadian banking industry. The authors also find that technological and regulatory changes have had significant positive effects on the banks' cost structure.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 05-13.
Length: 31 pages
Date of creation: 2005
Date of revision:
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Other versions of this item:
- 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.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-07 (All new papers)
- NEP-EFF-2005-05-07 (Efficiency & Productivity)
- NEP-FIN-2005-05-07 (Finance)
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