Operating efficiency of Canadian banks

Canadian banks are assessed in their ability to realize scale economies and cost complementarities in joint production. The Canadian banking system offers a good database for a study of efficiency, especially since previous work suggests that the system's concentration has had little impact on...

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Bibliographic Details
Published in:Journal of financial services research 1992-09, Vol.6 (3), p.265-276
Main Authors: Nathan, Alli, Neave, Edwin H
Format: Article
Language:English
Subjects:
Banking industry
Banking systems
Canada
Comparative analysis
Economies of scale
Efficiency
Input output analysis
Studies
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Summary:Canadian banks are assessed in their ability to realize scale economies and cost complementarities in joint production. The Canadian banking system offers a good database for a study of efficiency, especially since previous work suggests that the system's concentration has had little impact on system competitiveness. A system of cost and cost share equations are estimated using Zellner's (1962) iterative seemingly unrelated regression technique, then scale economies and cost compelementarities are evaluated from the estimated cost functions' first and 2nd partial derivatives. A model that classifies deposits as inputs is compared to another that classifies them as outputs. The empirical findings indicate that: 1. deposits are better modelled as outputs than inputs, 2. Canadian banks organize to exhaust available sources of scale economies and economies in joint production, and 3. conclusions regarding scale economies and cost complementarities differ importantly according to whether deposits are modelled as inputs or outputs.
ISSN:0920-8550
1573-0735
DOI:10.1007/BF01047084