Efficiency and economies of scale of large Canadian banks

Jason Allen and Ying Liu

Canadian Journal of Economics, 2007, vol. 40, issue 1, pages 225-244

Abstract: This paper measures the economies of scale of Canada's six largest banks and their cost-efficiency over time. Using a unique panel data set from 1983 to 2003, we estimate pooled cost functions and derive measures of relative efficiency and economies of scale. The disaggregation of the data allows us to include non-traditional outputs as well as time-varying, bank-specific effects. Our model leads us to reject constant returns to scale. These findings suggest there are potential scale benefits in the Canadian banking industry. We also find that technological and regulatory changes have had significant positive effects on the banks' cost structure.

JEL-codes: G21 D24 C33 (search for similar items in EconPapers)
Date: 2007
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Working Paper: Efficiency and Economies of Scale of Large Canadian Banks (2005)
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