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Funding Advantage and Market Discipline in the Canadian Banking Sector

Mehdi Beyhaghi, Chris D'Souza and Gordon Roberts

Staff Working Papers from Bank of Canada

Abstract: We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada, and on the extent to which market discipline exists across different securities issued by the Canadian banks. The banking sector in Canada provides a unique setting in which to examine market discipline along with the prospects of proposed reforms, because Canada has no history of government bailouts. Our results suggest that large banks likely have a funding advantage over small banks after controlling for bank-specific and market risk factors. Working with hand-collected market data on debt issues by large banks, we also find that market discipline exists for subordinated debt and not for senior debt.

Keywords: Financial Institutions; Interest rates (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 G33 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2013
New Economics Papers: this item is included in nep-ban
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