Financial Structure Change and Banking Income: A Canada-U.S. Comparison

The impact of off-balance-sheet activities on banks returns: An application of the ARCH-M to Canadian data

“…Indeed, activities related to noninterest income are much more volatile than those associated to net interest income (Stiroh, 2004a). There is actually a diversification effect due to the fact that the correlation between interest and noninterest income is less than one, but this indirect effect is quite low in comparison to the direct one (Calmès and Liu, 2009). Moreover, the correlation between these two forms of income is unstable, and the direct contribution of noninterest income to the volatility of net operating revenue growth largely dominates.…”

“…The various amendments to the Bank Act somewhat loosen the new constraints faced by the Canadian banking industry. The emergence of a market-oriented trend in banking tends to coincide with these amendments (Calmès and Liu, 2009). 14 Incidentally, the amendments made in 1992 and 1997 are very important in the deregulation process, considering the changes observed thereafter.…”

“…2 that the fluctuations of the share of noninterest income are much larger after 1997 than before. Indeed, this share became increasingly sensitive to the fluctuations of financial markets (Calmès, 2004;Calmès and Liu, 2009). 16 Note also that the adoption, in 1997, of the VaR as the standard banks risk measure has likely contributed to the increased banks income growth volatility, because of its tendency to underestimate the negative impact of fat tails risk.…”

“…come component of banks net operating revenue is more volatile than the net interest income one (Calmès and Liu, 2009). The volatility of the noninterest income growth was exacerbated by the market turmoil which took place around the turn of the second millennium, noninterest income becoming increasingly sensitive to stock markets.…”

The diversification and financial performance of US credit unions

“…For banks, both in the US and elsewhere, several researchers have explored relationships between non-interest income and business strategies, market conditions, technological change and risk-adjusted financial performance (Gallo et al, 1996;DeYoung and Rice, 2004a,b,c;Stiroh, 2004a,b;Calmes and Liu, 2005;Landskroner et al, 2005;Acharya et al, 2006;Stiroh, 2006;Stiroh and Rumble, 2006;Carbo-Valverde and Fernandez, 2007;Laeven and Levine, 2007;Lepetit et al, 2007;Mercieca et al, 2007;Hirtle and Stiroh, 2007). Similar attention has not, however, been given to the US credit union sector.…”