IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Impact of Off-Balance-Sheet Activities on Banks Returns: An Application of the ARCH-M to Canadian Data

  • Christian Calmès

    ()

    (Département des sciences administratives, Université du Québec (Outaouais), et Chaire d'information financière et organisationnelle, ESG-UQAM)

  • Raymond Théoret

    ()

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

This paper revisits the impact of off-balance-sheet (OBS) activities on banks risk-return trade-off. Recent studies (e.g., Stiroh and Rumble 2006) suggest that increasing OBS activities do not necessarily yield straightforward diversification benefits for banks. However, introducing a risk premium in the standard banks returns models, and resorting to an ARCH-M procedure, Canadian data suggest that banks risk-return trade-off displays a structural break around 1997. In the second subperiod of our sample (1997-2007), we find that the noninterest income generated by OBS activities no longer impacts banks returns negatively. While during the first period (1988-1996) the volatility variable is not significant in any returns equations, a risk premium eventually emerged, pricing the risk associated to OBS activities risks.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.repad.org/ca/qc/uq/uqo/dsa/cifo2009-07.pdf
File Function: First version, 2009
Download Restriction: no

Paper provided by Département des sciences administratives, UQO in its series RePAd Working Paper Series with number UQO-DSA-wp032009.

as
in new window

Length: 37 pages
Date of creation: 12 Aug 2009
Date of revision:
Handle: RePEc:pqs:wpaper:032009
Contact details of provider: Postal: Pavillon Lucien Brault, 101 rue Saint Jean-Bosco, Gatineau (Québec) J8Y 3G5
Phone: (819) 595-3900
Fax: (819) 773-1747
Web page: http://www.repad.org/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. 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.
  2. Kevin Stiroh, 2006. "New Evidence on the Determinants of Bank Risk," Journal of Financial Services Research, Springer, vol. 30(3), pages 237-263, December.
  3. Joel F. Houston & Kevin J. Stiroh, 2006. "Three decades of financial sector risk," Staff Reports 248, Federal Reserve Bank of New York.
  4. Reint Gropp & Florian Heider, 2010. "The Determinants of Bank Capital Structure," Review of Finance, European Finance Association, vol. 14(4), pages 587-622.
  5. Alan K. Reichert & Larry D. Wall, 2000. "The potential for portfolio diversification in financial services," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 35-52.
  6. Pérignon, Christophe & Deng, Zi Yin & Wang, Zhi Jun, 2008. "Do banks overstate their Value-at-Risk?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 783-794, May.
  7. Rocco Huang & Lev Ratnovski, 2009. "Why Are Canadian Banks More Resilient?," IMF Working Papers 09/152, International Monetary Fund.
  8. Jorge Roldos, 2006. "Disintermediation and Monetary Transmission in Canada," IMF Working Papers 06/84, International Monetary Fund.
  9. Stiroh, Kevin J. & Rumble, Adrienne, 2006. "The dark side of diversification: The case of US financial holding companies," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2131-2161, August.
  10. Viral V. Acharya & Iftekhar Hasan & Anthony Saunders, 2002. "The effects of focus and diversification on bank risk and return: evidence from individual bank loan portfolios," Proceedings 905, Federal Reserve Bank of Chicago.
  11. Christian Calmès, 2004. "Regulatory Changes and Financial Structure: The Case of Canada," Working Papers 04-26, Bank of Canada.
  12. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2002. "The Impact of Macroeconomic Uncertainty on Bank Lending Behavior," Computing in Economics and Finance 2002 94, Society for Computational Economics.
  13. Goddard, John & McKillop, Donal & Wilson, John O.S., 2008. "The diversification and financial performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1836-1849, September.
  14. Urban Jermann & Vincenzo Quadrini, 2007. "Financial Innovations and Macroeconomic Volatility," 2007 Meeting Papers 50, Society for Economic Dynamics.
  15. Gayle Delong & Robert Deyoung, 2007. "Learning by Observing: Information Spillovers in the Execution and Valuation of Commercial Bank M&As," Journal of Finance, American Finance Association, vol. 62(1), pages 181-216, 02.
  16. Jose Manuel Campa & Simi Kedia, 2002. "Explaining the Diversification Discount," Journal of Finance, American Finance Association, vol. 57(4), pages 1731-1762, 08.
  17. DeYoung, Robert & Roland, Karin P., 2001. "Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 54-84, January.
  18. Joshua D. Coval & Jakub W. Jurek & Erik Stafford, 2009. "Economic Catastrophe Bonds," American Economic Review, American Economic Association, vol. 99(3), pages 628-66, June.
  19. Stephen G. Cecchetti, 2008. "Crisis and Responses: the Federal Reserve and the Financial Crisis of 2007-2008," NBER Working Papers 14134, National Bureau of Economic Research, Inc.
  20. Ricardo J. Caballero & Eduardo Engel, 2003. "Adjustment is Much Slower than You Think," NBER Working Papers 9898, National Bureau of Economic Research, Inc.
  21. Mario Quagliariello, 2009. "Macroeconomic uncertainty and banks' lending decisions: the case of Italy," Applied Economics, Taylor & Francis Journals, vol. 41(3), pages 323-336.
  22. Christopher F Baum & Mustafa Caglayan & Neslihan Ozkan, 2005. "The second moments matter: The response of bank lending behaviour to macroeconomic uncertainty," Working Papers 2005_27, Business School - Economics, University of Glasgow.
  23. Baele, Lieven & De Jonghe, Olivier & Vander Vennet, Rudi, 2007. "Does the stock market value bank diversification?," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1999-2023, July.
  24. Joshua Coval & Jakub Jurek & Erik Stafford, 2009. "The Economics of Structured Finance," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 3-25, Winter.
  25. Busch, Ramona & Kick, Thomas, 2009. "Income diversification in the German banking industry," Discussion Paper Series 2: Banking and Financial Studies 2009,09, Deutsche Bundesbank, Research Centre.
  26. Wagner, W.B., 2006. "Diversification at Financial Institutions and Systemic Crises," Discussion Paper 2006-71, Tilburg University, Center for Economic Research.
  27. Lepetit, Laetitia & Nys, Emmanuelle & Rous, Philippe & Tarazi, Amine, 2008. "The expansion of services in European banking: Implications for loan pricing and interest margins," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2325-2335, November.
  28. Christian Calmès & Ying Liu, 2005. "Financial Structure Change and Banking Income: a Canada-U.S. Comparison," RePAd Working Paper Series UQO-DSA-wp0302005, Département des sciences administratives, UQO.
  29. Stiroh, Kevin J., 2006. "A Portfolio View of Banking with Interest and Noninterest Activities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1351-1361, August.
  30. Robert DeYoung & Tara Rice, 2004. "Noninterest Income and Financial Performance at U.S. Commercial Banks," The Financial Review, Eastern Finance Association, vol. 39(1), pages 101-127, 02.
  31. Kevin J. Stiroh, 2002. "Diversification in banking: is noninterest income the answer?," Staff Reports 154, Federal Reserve Bank of New York.
  32. Wagner, Wolf, 2008. "The homogenization of the financial system and financial crises," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 330-356, July.
  33. Rose, Peter S, 1989. "Diversification of the Banking Firm," The Financial Review, Eastern Finance Association, vol. 24(2), pages 251-80, May.
  34. Brown, James R. & Petersen, Bruce C., 2009. "Why has the investment-cash flow sensitivity declined so sharply? Rising R&D and equity market developments," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 971-984, May.
  35. Demsetz, Rebecca S & Strahan, Philip E, 1997. "Diversification, Size, and Risk at Bank Holding Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 300-313, August.
  36. Adrian, T. & Shin, H S., 2009. "The shadow banking system: implications for fi nancial regulation," Financial Stability Review, Banque de France, issue 13, pages 1-10, September.
  37. Saunders, Anthony & Walter, Ingo, 1994. "Universal Banking in the United States: What Could We Gain? What Could We Lose?," OUP Catalogue, Oxford University Press, number 9780195080698, March.
  38. Lepetit, Laetitia & Nys, Emmanuelle & Rous, Philippe & Tarazi, Amine, 2008. "Bank income structure and risk: An empirical analysis of European banks," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1452-1467, August.
  39. Kevin Stiroh, 2004. "Do Community Banks Benefit from Diversification?," Journal of Financial Services Research, Springer, vol. 25(2), pages 135-160, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pqs:wpaper:032009. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Calmes)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.