Banking market structure and efficiency: an assessment of the USA and Canada

Abstract

Purpose

The study aims to analyze the changes in banking market structure and their impact on the bank efficiency.

Design/methodology/approach

This study uses a one-stage stochastic frontier analysis (SFA) to compare the impact of the market structure and the GFC on the economic efficiency of the major banks in both countries.

Findings

A significant negative impact of the GFC is observed on bank efficiency. Overall, Canadian banks posted better efficiency scores than their American counterparts. Additionally, cost-efficient banks are found to be more resilient to crises and more profit-efficient in the post-GFC period. The authors found that market power had a positive impact on the cost and profit efficiency of banks. Higher levels of equity, market power and concentration helped banks be more cost-efficient.

Research limitations/implications

Only large banks are selected for study although it represents the majority stake of both banking sectors.

Practical implications

Banking regulators should include more measures to assess the banking market structure and performance.

Originality/value

As per the best knowledge of the authors, it is the first study to assess the change in banking market structure and efficiency of the US and Canadian banking sectors in the post-GFC period.

Citation

U-Din, S. and Tripe, D. (2022), "Banking market structure and efficiency: an assessment of the USA and Canada", Journal of Economic Studies, Vol. 49 No. 6, pp. 1076-1091. https://doi.org/10.1108/JES-03-2021-0157