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Financial structure change and banking income: A Canada-U.S. comparison

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  • Calmès, Christian
  • Liu, Ying

Abstract

Data suggest that the Canadian financial structure, and particularly indirect finance (e.g., banking), have become more market-oriented. We associate this financial trend in part with the regulatory changes that have occurred in Canada since the 1980s. Financial intermediaries are increasingly involved with financial market activities--e.g. off-balance sheet (OBS) activities such as underwriting securities. In this article we analyze the noninterest income attributable to these financial market activities. We find that the variance of Canadian banks' aggregate operating-income growth is rising because of the increased contribution of noninterest income. Overall, our analysis corroborates the U.S. findings of Stiroh and Rumble (Stiroh, K., 2006. A portfolio view of banking with interest and noninterest assets. Jounal of Money, Credit, and Banking 38, 1351-1361; Stiroh, K., Rumble, A., 2006. The darkside of diversification: the case of U.S. financial holding companies. Journal of Banking and Finance 30, 2131-2161): by contributing to banking income volatility, market-oriented activities do not necessarily yield straightforward diversification benefits to Canadian banks.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:intfin:v:19:y:2009:i:1:p:128-139
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    1. Luigi Zingales & Raghuram G. Rajan, 2003. "Banks and Markets: The Changing Character of European Finance," NBER Working Papers 9595, National Bureau of Economic Research, Inc.
    2. Joel F. Houston & Kevin J. Stiroh, 2006. "Three decades of financial sector risk," Staff Reports 248, Federal Reserve Bank of New York.
    3. 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.
    4. John H. Boyd & Mark Gertler, 1994. "Are banks dead? Or are the reports greatly exaggerated?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-23.
    5. G. Dionne & T. M. Harchaoui, 2002. "Banks’ Capital, Securitization and Credit Risk : An Empirical Evidence for Canada," THEMA Working Papers 2002-33, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    6. 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.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Christian Calm¨¨s & Raymond Th¨¦oret, 2016. "The Asymmetric Impact of Portfolio Mix on Bank Performance over the Business Cycle: U.S. and Canadian Evidence," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 57-74, February.
    5. repec:kap:iaecre:v:19:y:2013:i:3:p:233-247 is not listed on IDEAS
    6. Robert Andersen & M. McIvor, 2013. "GINI Country Report: Growing Inequalities and their Impacts in Canada," GINI Country Reports canada, AIAS, Amsterdam Institute for Advanced Labour Studies.
    7. Christian Calmès & Raymond Théoret, 2012. "Bank systemic risk and the business cycle: Canadian and U.S. evidence," RePAd Working Paper Series UQO-DSA-wp022012, Département des sciences administratives, UQO.
    8. Dinamona, Didelle, 2010. "Sensibilité des banques aux chocs macroéconomiques : La diversification apporte-t-elle toujours des gains? Cas des banques canadiennes," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(1), pages 79-107, mars.
    9. 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.
    10. Meg Adachi-Sato & Chaiporn Vithessonthi, 2016. "Bank Systemic Risk and Corporate Investment," PIER Discussion Papers 17., Puey Ungphakorn Institute for Economic Research, revised Jan 2016.
    11. Nguyen, James, 2012. "The relationship between net interest margin and noninterest income using a system estimation approach," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2429-2437.
    12. 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.
    13. 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.
    14. 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.
    15. Philippe Bergevin & Christian Calmès & Raymond Théoret, 2013. "Time-Varying Leverage and Basel III: A Look at Canadian Evidence," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(3), pages 233-247, August.
    16. 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.
    17. Mariarosa Borroni & Simone Rossi, 2017. "Does revenue diversification still matter in banking? Evidence from some European countries," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1723, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

    More about this item

    Keywords

    Regulatory changes Noninterest income Diversification;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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