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The Impact of Banking Deregulation on Canadian Banks Returns

Author

Listed:
  • Christian Calmès

    (Département des sciences administratives, Université du Québec (Outaouais), et LRSP)

  • Raymond Théoret

    (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle)

Abstract

This paper revisits the impact of OBS activities on Canadian banks risk-return trade-off. Recent studies (Stiroh and Rumble 2006, Calmès and Liu 2007) suggest that increasing OBS activities do not necessarily yield straightforward diversification benefits. However, adding a risk premium to earlier accounting returns models by resorting to an ARCH-M procedure, an updated sample reveals that the Canadian banks risk-return trade-off displays a structural break, around 1997. In the second subperiod (1997-2007) of our sample, we find that the share of noninterest income no longer negatively impacts banks returns. Relatedly, we find that a risk premium emerges while, in the first period (1988-1996), the volatility variable is not significant in any returns equations. Our results are thus consistent with a maturation process story.

Suggested Citation

  • 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.
    • Handle: RePEc:pqs:wpaper:022009
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    References listed on IDEAS

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    More about this item

    Keywords

    Regulatory changes; Noninterest income; Diversification; Structural break; Risk premium.;
    All these keywords.

    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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