Financial structure change and banking income: A Canada–U.S. comparison |
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| Authors: | Christian Calmès Ying Liu |
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| Institution: | 1. Université du Québec en Outaouais, Canada;2. Laboratory for Research in Statistics and Probability, Canada;3. MFA, Bank of Canada, Canada;1. Key Laboratory of Key Functional Parts of Machine, Anyang Institute of Technology, Anyang 455002, Henan, China;2. School of Materials Science and Engineering, University of Science and Technology Beijing, Beijing 100083, China;1. State Key Laboratory of Complex Nonferrous Metal Resources Clean Utilization, Kunming University of Science and Technology, Kunming 650093, Yunnan, China;2. College of Materials Science and Engineering, Chongqing University, Chongqing 400044, China;1. Islamic Research and Training Institute (A member of Islamic Development Bank Group), 8111 King Khalid Street Al Nuzlah Al Yamania Dist., Jeddah 22332-2444, Saudi Arabia;2. Department of Finance and Economics, King Fahd University of Petroleum and Minerals, Dhahran, 31261 Saudi Arabia |
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| 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. |
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