The Impact of Banking Deregulation on Canadian Banks Returns

Christian Calmès () and Raymond Théoret ()
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Raymond Théoret: Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle

RePAd Working Paper Series from Département des sciences administratives, UQO

Abstract: This paper revisits the impact of OBS activities on Canadian banks risk-return trade-off. Recent studies (Stiroh and Rumble 2006, Calmès and Liu 2007) suggest that increasing OBS activities do not necessarily yield straightforward diversification benefits. However, adding a risk premium to earlier accounting returns models by resorting to an ARCH-M procedure, an updated sample reveals that the Canadian banks risk-return trade-off displays a structural break, around 1997. In the second subperiod (1997-2007) of our sample, we find that the share of noninterest income no longer negatively impacts banks returns. Relatedly, we find that a risk premium emerges while, in the first period (1988-1996), the volatility variable is not significant in any returns equations. Our results are thus consistent with a maturation process story.

Keywords: Regulatory changes; Noninterest income; Diversification; Structural break; Risk premium. (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2009-01-12
New Economics Papers: this item is included in nep-ban, nep-bec and nep-reg
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