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

  • 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)

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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File URL: http://www.bapress.ca/ref/v3-4/1923-7529-2013-04-01-18.pdf
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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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  1. Rocco Huang & Lev Ratnovski, 2009. "Why Are Canadian Banks More Resilient?," IMF Working Papers 09/152, International Monetary Fund.
  2. George Pennacchi, . "Loan Sales and the Cost of Bank Capital," Rodney L. White Center for Financial Research Working Papers 7-87, Wharton School Rodney L. White Center for Financial Research.
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  10. 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.
  11. Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
  12. Charles Calomiris & Joseph Mason, 2004. "Credit Card Securitization and Regulatory Arbitrage," Journal of Financial Services Research, Springer, vol. 26(1), pages 5-27, August.
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