Bank consolidation and stability: The Canadian experience, 1867–1935

Kam Hon Chu

Journal of Financial Stability, 2015, vol. 21, issue C, 46-60

Abstract: Transfer-function estimation results for bank M&As in Canada during 1867–1935 support the concentration-stability hypothesis. The systemic stability is attributed to risk reduction through geographic diversification as 2/3 of the M&As were cross-province acquisitions. Furthermore, our empirical findings together with a probabilistic theoretical model support the efficiency hypothesis rather than the imminent failure hypothesis. They not only shed light on the debate in the literature but also have policy lessons for M&As today. More specifically, two mega-mergers would have been denied according to the concentration ratio or HHI criteria commonly used in merger guidelines today, thus hindering banks’ risk reduction through consolidation.

Keywords: Bank mergers and acquisitions; Banking stability; Canadian banking; Geographic diversification; Z-score (search for similar items in EconPapers)
JEL-codes: G2 L4 N2 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:21:y:2015:i:c:p:46-60

DOI: 10.1016/j.jfs.2015.08.007

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