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Published online by Cambridge University Press: 07 November 2014
The primary purpose of this article is to perform a statistical test of the popular contention that interest rate differentials have been important determinants of the relative decline of the Canadian chartered banks in the competition for personal savings deposits. The Report of the Royal Commission on Banking and Finance, in listing the various factors that influence the distribution of savings deposits among depository institutions, stated that, “the rate paid on deposits is also a very important factor in attracting funds. …” The Commission also commented that the fact that the banks have not paid as high rates as their competitors on personal savings deposits “has without question contributed to their relatively slow rate of growth.” In support of these assertions the Commission stated that, “there is evidence suggesting the force of interest rate competition. As an example, market rates and rates paid on such claims as trust and loan company liabilities rose quite sharply in 1959 while the banks' rate held steady as 2¾%. In that year the share of personal savings deposits in the ‘market’ … declined more sharply than in previous years.”
The Commission's evidence, it may be suggested, falls into the post hoc ergo propter hoc category. For example, the fact that the number of trust company outlets increased 5.3 per cent during 1958–59, compared to only 0.2 per cent on the average during the previous six-year period, can just as easily be presented as the reason for the relative increase of trust company savings in 1959.
L'objet de cet article est de vérifier par la statistique l'affirmation commune à l'effet que les différences dans les taux d'intérêt ont été une cause importante du déclin relatif des banques à charte canadiennes sur le marché des dépots d'épargne personnelle de 1946 à 1962. Les principaux débouchés pour les fonds d'épargne personnelle, les banques mises à part, sont les sociétés de fiducie et les caisses populaires.
C'est à l'aide de la théorie du consommateur qu'on identifie les multiples facteurs qui règlent la répartition des dépots d'épargne entre ces institutions. D'après les résultats d'une analyse de régression multiple avec moindres carrés, les changements dans les taux d'intérêt relatifs expliquent peu, s'ils expliquent quelque chose, à la baisse relative des dépots d'épargne dans les banques à charte. Par contre, une part substantielle des succès des sociétés de fiducie et des caisses populaires à concurrencer les banques à charte est imputable à de la concurrence sur le produit plutôt que sur le prix. Cette observation montre jusqu'à quel point les sociétés de fiducie et les caisses populaires sont disposées à adapter la nature de leurs comptes d'épargne et des services qui s'y rapportent aux préférences des déposants. L'augmentation des revenus personnels per capita explique également une partie de la baisse relative des banques à charte.
Par suite des difficultés qu'on a eues à mesurer certaines variables et à cause du petit nombre des observations, les résultats de l'analyse statistique qui sont présentés dans cet article doivent être considérés comme provisoires.
The author is indebted to Donald R. Hodgman, University of Illinois, and Milton F. Bauer, University of Alberta, for useful comments and suggestions.
1 Report of the Royal Commission on Banking and Finance (Ottawa, 1964), 121.Google Scholar Italics added.
2 Ibid. Italics added.
3 Ibid. Italics added.
4 It is possible that some crude estimate of the effective rate paid by the chartered banks could be made by adjusting the announced rates for the method used in calculating and crediting accrued interest and taking into account the rate of turnover of the savings deposit accounts. Since the model used in this article represents the interest variable by ratios which measure the relative rather than the absolute magnitudes of the several rates such an estimate of effective rates is not absolutely necessary. However, the relative stability of the relationship between the effective rates and the announced rates is important. It appears reasonable to assume that this relationship has been relatively constant during the period since 1946 because the method used in computing interest has remained the same during this time and the rate of turnover of the savings deposit accounts has remained relatively stable.
5 For support of this statement see Meltzer, A. H., “A Little More Evidence from the Time Series,” Journal of Political Economy, 10 1964, 506.Google Scholar
6 Alhadeff, D. A. and Alhadeff, C. P., “The Struggle for Commercial Bank Savings,” Quarterly Journal of Economics, 02 1958, 5.Google Scholar
7 Ibid., 6.
8 For a discussion of this classification and related analysis see Boulding, Kenneth E., Economic Analysis, rev. ed. (New York, 1948), 717–27.Google Scholar
9 If this were the only explanation of the relationship between the variable Q and market shares, it might have been preferable to use ratios of average costs in the model instead of total costs. A multiple regression correlation using ratios of average costs was run. This modified model confirmed that average costs of trust companies and credit unions decreased relative to average costs of chartered banks (negative net regression coefficients). The average cost ratios had the expected high statistical significance.
10 Gramley, L. E., A Study of Scale Economics in Banking (Kansas City: Federal Reserve Bank of Kansas City, 1962).Google Scholar
11 Report of the Royal Commission on Banking and Finance, 174.
12 Sinclair, S., “The Booming Trust Companies, How Big? How Many?”, Canadian Business, 05 1964.Google Scholar
13 Report of the Royal Commission on Banking and Finance, 26.