Are Canadian Banks Efficient? A Canada--U.S. Comparison

Jason Allen, Walter Engert and Ying Liu

Staff Working Papers from Bank of Canada

Abstract: The authors compare the efficiency of Canada's largest banks with U.S. commercial banks over the past 20 years. Efficiency is measured in three ways. First, the authors study key performance ratios, and find that Canadian banks are as productive as U.S. banks. Second, they investigate whether there are economies of scale in the production functions of Canadian banks and broadly comparable U.S. bank-holding companies (BHCs). They find larger economies of scale for Canadian banks than for the U.S. BHCs, which suggests that Canadian banks are less efficient in terms of scale, and have more to gain in terms of efficiency benefits from becoming larger. Third, the authors measure cost-inefficiency in Canadian banks and in U.S. BHCs relative to the domestic efficient frontier in each country (the domestic best-practice institution). They find that Canadian banks are closer to the domestic efficient frontier than are the U.S. BHCs. Canadian banks have also moved closer to the domestic efficient frontier than have the U.S. BHCs over time. Finally, the authors examine the dispersion in cost-inefficiency found in Canadian banks and attribute some of the dispersion to differences in information and communication technology investment. Comparisons are made with the U.S. BHC experience.

Keywords: Financial; institutions (search for similar items in EconPapers)
JEL-codes: C33 D24 G21 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2006
New Economics Papers: this item is included in nep-ban, nep-bec, nep-eff, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:06-33

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