A comparison of the stability and efficiency of the Canadian and American Banking Systems 1870-1925

Author / Creator

Bordo, Michael D

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Online

Summary

Abstract: In this paper we compare the performance of the U.S. and Canadian banking systems from 1870-1925 in terms of stability and efficiency. In an earlier study we found that the Canadian banki...

Abstract: In this paper we compare the performance of the U.S. and Canadian banking systems from 1870-1925 in terms of stability and efficiency. In an earlier study we found that the Canadian banking system, based on nationwide branch banking, dominated the U.S. system, based on unit banking, on both criteria in the period 1920-1980. In this study we find that there is little significant difference between the two systems in the preceding 50 years. The difference between the two periods we attribute to the merger movement in Canada after 1900 which allowed the Canadian banking system to evolve from a system with incomplete regional diversification, and hence subject to a significant risk of an occasional failure by a large bank, to one characterized by national diversification and greater stability. The greater stability in turn allowed the financial structure of the banking system to evolve in a more efficient direction.

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