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Banks? Non-Traditional Activities Under Regulatory Changes: Impact on Risk, Performance and Capital Adequacy

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  • Jean-Pierre Gueyié
  • Alaa Guidara
  • Van Son Lai

Abstract

Using the big six Canadian chartered banks quarterly financial statements and daily stock market data from 1982 to 2018, we examine the impact of non-interest income on Canadian banks? risk, performance and capital under the different major regulatory changes made to the Bank Act of Canada. Our results show that Canadian banks? expansion into nontraditional activities had slightly decreased their risks and significantly improved their performance benefitting from income diversification. Moreover, while adhering to capital adequacy regulation, reshuffling banks? portfolio towards non-traditional activities did not reduce Canadian banks? capital ratio. In spite of the re-regulation towards universal banking against ring-fencing, this feature buttresses the effectiveness of capital adequacy regulation in Canada in linking banks capital allocation with their risk taking

Suggested Citation

  • Jean-Pierre Gueyié & Alaa Guidara & Van Son Lai, 2018. "Banks? Non-Traditional Activities Under Regulatory Changes: Impact on Risk, Performance and Capital Adequacy," Working Papers 2018-003, Department of Research, Ipag Business School.
    • Handle: RePEc:ipg:wpaper:2018-003
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    4. Di Johnson & John Rodwell & Thomas Hendry, 2021. "Analyzing the Impacts of Financial Services Regulation to Make the Case That Buy-Now-Pay-Later Regulation Is Failing," Sustainability, MDPI, vol. 13(4), pages 1-20, February.

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    More about this item

    Keywords

    Non-interest income; Banking regulation; Risk exposure; Performance; Capital;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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