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Efficiency and economies of scale of large Canadian banks

Author

Listed:
  • Jason Allen
  • Ying Liu

Abstract

This paper measures 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, we estimate pooled cost functions and derive measures of relative efficiency and economies of scale. The disaggregation of the data allows us to include non-traditional outputs as well as time-varying, bank-specific effects. Our model leads us to reject constant returns to scale. These findings suggest there are potential scale benefits in the Canadian banking industry. We also find that technological and regulatory changes have had significant positive effects on the banks' cost structure.

Suggested Citation

  • 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.
    • Handle: RePEc:cje:issued:v:40:y:2007:i:1:p:225-244
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    JEL classification:

    • 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

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