Efficiency and Economies of Scale of Large Canadian Banks

Jason Allen and Ying Liu

Working Papers from Bank of Canada

Abstract: The authors measure 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, they estimate pooled translog cost functions and derive measures of relative efficiency and economies of scale. The disaggregation of the data allows the authors to model Canadian banks as producing multiple outputs, including non-traditional activities. Given the long time span of the data set, they also incorporate technological and regulatory changes in the banks' cost functions, as well as time-varying bank-specific effects. The authors' model leads them to reject constant returns to scale. These findings suggest that there are potential scale benefits in the Canadian banking industry. The authors also find that technological and regulatory changes have had significant positive effects on the banks' cost structure.

Keywords: Financial; institutions (search for similar items in EconPapers)
JEL-codes: G21 D24 C33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff and nep-fin
Date: 2005
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Related works:
Journal Article: Efficiency and economies of scale of large Canadian banks (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:bca:bocawp:05-13

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