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Financial Structure Change and Banking Income: a Canada-U.S. Comparison

  • Christian Calmès

    ()

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

  • Ying Liu

    ()

    (Bank of Canada)

Data suggest that the Canadian financial structure, and particularly indirect finance (e.g., banking), have become more market-oriented. we associate this financiel trend in part with the regulatory changes that have occured 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. For this reason, we analyze the noninterest income attributable to 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. This component is by nature quite volatile compared to interest income. Consequently, our analysis corroborates the U.S. finding of Stiroh (2004), and Stiroh and Rumble (2005): By contributing to banking income volatility, market-oriented activities do not necessarily yield straightforward diversification benefits to Canadian banks.

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File URL: http://www.repad.org/ca/qc/uq/uqo/dsa/div011204.pdf
File Function: First version, 2005
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Paper provided by Département des sciences administratives, UQO in its series RePAd Working Paper Series with number UQO-DSA-wp0302005.

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Length: 31 pages
Date of creation: 26 Jul 2005
Date of revision:
Handle: RePEc:pqs:wpaper:0302005
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  1. Christian Calmès, 2004. "Regulatory Changes and Financial Structure: The Case of Canada," Working Papers 04-26, Bank of Canada.
  2. 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.
  3. John H. Boyd & Mark Gertler, 1994. "Are banks dead? or, are the reports greatly exaggerated?," Proceedings 25, Federal Reserve Bank of Chicago.
  4. 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.
  5. Joel F. Houston & Kevin J. Stiroh, 2006. "Three decades of financial sector risk," Staff Reports 248, Federal Reserve Bank of New York.
  6. 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.
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