Canadian banks thrive and reduce risk through non-traditional activities diversification.
The study looked at how Canadian banks' involvement in non-traditional activities affected their risk, performance, and capital adequacy. By analyzing financial data from 1982 to 2018, the researchers found that expanding into non-traditional activities slightly decreased risks and significantly improved performance for Canadian banks. Despite regulatory changes, shifting towards non-traditional activities did not reduce banks' capital ratios, showing that capital adequacy regulations in Canada effectively link capital allocation with risk-taking.