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

RePad Working Paper No. 0302005

31 Pages Posted: 16 Jan 2014

See all articles by Christian Pierre Alain Calmès

Christian Pierre Alain Calmès

Université du Québec en Outaouais

Ying Liu

Bank of Canada - Department of Monetary and Financial Analysis

Date Written: 2005

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. For this reason, we analyze the non-interest 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 non-interest 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.

Keywords: Regulatory changes; indirect finance; noninterest income; diversification

JEL Classification: G20; G21

Suggested Citation

Calmès, Christian Pierre Alain and Liu, Ying, Financial Structure Change and Banking Income: A Canada-U.S. Comparison (2005). RePad Working Paper No. 0302005, Available at SSRN: https://ssrn.com/abstract=2379646 or http://dx.doi.org/10.2139/ssrn.2379646

Christian Pierre Alain Calmès (Contact Author)

Université du Québec en Outaouais ( email )

Campus de St Jérôme
5 rue St Joseph
St Jérôme, Québec J7Z 0B7
Canada

HOME PAGE: http://econpapers.repec.org/RAS/pca19.htm

Ying Liu

Bank of Canada - Department of Monetary and Financial Analysis ( email )

Ottawa, Ontario K1A 0G9
Canada

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