Referee ReportBank Consolidation and Stability:The Canadian Experience, 1867-1935Mergers and acquisitions, although are need of todays economy. This paper has covered the period of 1867-1935, when the Canadian policy makers were reluctant to undertake M&As. According to the author of this journal they were of view that factors of decision may differ from individual banks and from industry. Usually policy makers put more emphasis on post-merger systematic risk as for them banking crisis was most costly for the industry. While banks were more concern about pre-merger conditions. Author suggests that policy makers were on the right side as their argument is evidenced by concentration-fragility hypothesis. The exact proof loans backing to the fixation security speculation. The one and only out of the 27 bank disappointment amid this period was an acquiring bank, while every acquiring bank developed significantly in both size and pace of the overall industry. The security of the keeping money framework was part of the way because of danger decrease through geographic broadening, as 66% of the 33 mergers and acquisitions were cross territory exchanges. Other than geographic broadening, other institutional elements added to keep money solidness. These incorporate hindrances to a section made by the legitimate prerequisites with respect to the bank's paid-up-capital, twofold risk, procurement of bank shareholders, and unlucky deficiency of both a national bank and an express store protection plan. Every one of these elements acted together to acquaint keeps money with shield their contract values via controlling from unnecessary danger taking. Therefore, the merger waves made a very tight yet stable keeping money framework. Other than checking the observational legitimacy of the focus, strength theory versus the fixation delicacy speculation, our examination additionally reveals some insight into the level headed discussion between the productivity speculation and approaching theory in the writing. Our outcomes are all the more for the previous theory for the majority of the M&As had all the earmarks of being driven by business sector powers, despite the fact that we can't deny that there was no less than one case in which a ruined bank was masterminded to be ingested under government intercession. Taking after the disappointment of Home Bank in 1923, the Canadian government and CBA may have assumed a more dynamic part than before than the general developmental pattern over the period under study. To wrap things up, our discoveries have strategy suggestions for the bank mergers today. Specifically, two super mergers could have been dismissed by the controllers since they surpassed the HHI edges as per the US DoJ's mergers direction today. Luckily, these two mergers were indeed affirmed and made two of Canada's biggest and stable banks. This proposes that undue dependence on the HHI as a choice foundation alone may upset bank's danger lessening through combining; and controllers ought to along these lines consolidate danger calculates unequivocally their bank merger rules to attain to a harmony in the middle of rivalry and soundness.

General assessment about the paperAfter going through this particular literature about the stability and the banking system, I personally feel that it contributed a lot for giving the understanding of the mergers and acquisitions of banks. The Author of this paper selected a time period when Canada was experiencing stability problems in respect of the banking system. This paper is based on a probabilistic model to draw an opinion. Although many other literatures are also published on this same topic, but I believe this is very effective as author supported his arguments with the theory of probabilistic model. So the reader can find theory and practice going together. Its a very empirically composed and readers who are students of economics, banking and finance can understand it with ease.Yet, I have some serious reservations on a number of points, where I believe that they shouldnt be put in this paper in the way they are presented. So in my opinion, there are some elements which needs to explain further before publication of this paper. At the start of the article, the author used some references. The reference of Dziobek and Pazarbasioglu 1997, is not an article which is covering the banking system of Canada. Rather, it speaks about the 24 different countries around the world who have undergone banking change. So I believe it's unfair to relate those factors which are prevailing in other countries with Canada. Moreover, this paper was published by the IMF. The ground realities faced by the native economists of the said 24 countries, may differ with those undertaken by professionals of the IMF. While going through further, in the year 2004 a paper Berger, Demirguc-Kunt, Levine, and Haubrich 2004 and Berger, Klapper and Turk-Ariss 2009, chaeck 2009 are used as reference in this article. Author himself says that based on US data for the years 1988-99., now readers will think that they are analyzing the Canadian banking system, then why to use US data? Why to compare 1988 with the tag line years of 1867-1935? Furthermore, by including two different references which are negating each other this article will create confusion. Berger et al, produced a broad survey of the combining of the monetary administrations industry, principally inside a U.S. connection. They find that solidification enhances benefit proficiency and differentiates hazard, barely enhances cost productivity, scarcely influences administrations to fewer customers, may enhance the installment framework effectiveness, and can build systemic expenses by expanding precise hazard or augmenting the safety net. There is a direct and positive relationship between consolidation and systemic risk larger will be the consolidations more will be the systemic risk (Berger, Demirguc-Kunt, Levine, and Haubrich 2004). In contrast, Allen and Gale gave a vise verse theory, he said that the more concentrated the banks less prone to financial instability (Allen and Gale). In the probabilistic model, the author suggested two indicators that will allow to decide banking stability. One is at the firm level and another is at industry level and termed as Z score. The indicator of firm level, is quite easy to understand, but Z score method is somewhat difficult to understand. Probabilistic model mentioned in the article is very technical, reader having sound knowledge can get an idea about that model. The Markowitz 1952 model is more of guidance to the investor, as it depicts two stages of selecting a portfolio. However, in the journal writer only connected the coefficient of correlation. The basic assumption inMarkowitz 1952 was, how to proceed with an investment by passing through a two staged process.However, the writer just mentioned a technical model and depicting the relationship and after effects of before the merger and after the merger. Since Canada has encountered few bank salvages, mergers or disappointments since 1930, analysts keen on these parts of the Canadian managing an account experience focuses on the period from Confederation in 1867 through the 1930s. In light of an examination of bank disappointments and frenzies from 1870 until 1913, Williamson (1989) acquires assessments of misfortunes to investors on aggregate stores of 7% in Canada and 11% in the United States. Kryzanowski and Roberts (1993, 1999) find that the Canadian banks were monetarily ruined in the 1920's and in the 1930's, and that avoidance and window dressing assumed an imperative part in keeping the disappointment of numerous Canadian banks amid this time period. They additionally find that the Government and the CBA sought after an approach of keeping away from express bank disappointments by, amongst different techniques, precisely dealing with the effect of any bank disappointments. Keeping up a suitable administrative environment for Canadian banks is a progressing test for the Canadian government and administrative organizations, and principally is refined through normal audits of the Canadian Bank Act. After 1992, audits of the Bank Act are at regular intervals rather than consistently. The real test confronted in every correction is to locate the proper administrative arrangement that guarantees that the Canadian saving money industry is okay and beneficial, offers suitable administrations to all customers, is not unduly thought, and is aggressive both broadly and globally. This obliges tenets and regulations that strike a sensitive harmony between the passageway of new banks to encourage advancement and rivalry, the way out of current banks through merger or procurement or conclusion when they are monetarily ruined and at insignificant expense and disturbance, and the merger of existing banks to guarantee that Canadian banks can meet focused development while keeping up a satisfactory level of local rivalry by guaranteeing that the Canadian saving money industry is not unduly thought. The latest influx of bank mergers in Canada happened amid the period 1900-1931. The period started with enactment intended to encourage bank mixes so as to minimize disappointments and misfortunes by encouraging the combination of the Canadian saving money area. This solidification, which at last brought about 28 bank mergers and one bank amalgamation, proceeded with unabated even after the enactment controlling bank mixes got to be more prohibitive in the Bank Acts of 1913 and 1923. From 1901 to 1931, the Canadian managing an account area was diminished from 35 to 11 banks. These surviving banks had head workplaces just in Montreal and Toronto. This article makes four principle commitments to the writing. To start with, this article uncovers the circumstances and huge numbers of the related unmistakable subtle elements of the greater part of the culminated bank mixes amid the 1900-1931 period. It likewise talks about the lawful and monetary connection hidden these bank mixes. Amid the first decade of the 1900s, bank mixes had little influence on bank fixation, and did not prompt close mediation by the then governments. Beginning in 1912, the retained banks were in frail money related positions, and the obtained banks began to be greater in size. Hence, the subsequent business mixes had a tendency to build saving money industry focus. In 1913 and because of open concern, the administration changed the enactment to require the approbation of the Finance Minister before any bank merger understanding could be agreed upon. Amid the most recent decade of this prior period, 1920-1931, most banks that are retained had extreme monetary issues. Amid the gloom of 1922, the Finance Minister and the CBA are mindful of a few hazardous banks. While the general population emphatically contradicts bank blends due to the trepidation of the bank imposing business model, it additionally demonstrates an absence of trust in the saving money framework after the disappointment of the Home Bank in 1923. The legislature presents government assessment, keeps on concealing the budgetary troubles of the banks, and deferrals bank mixes until they are unavoidable. Amid this decade, the national government and the CBA assume a prevalent part in the upkeep of an evidently strong managing an accounting framework. The second significant commitment is that we find that bank blends changed, keeping money fixation significantly over the examined time period. The national HHI, when computed utilizing bank offices, triples from 5% in 1901 to 15% in 1931. Accordingly, a time of the huge bank union goes before the Great Depression in Canada. A few territorial markets get to be significantly more focused. For instance, the Quebec HHI is about 30% in 1931. The third significant commitment not at all like bank disappointments over this period, the majority of the bank mergers independently had a critical impact on the month to month variety of the national HHI, and the provincial HHIs. Be that as it may, as a gathering, both the bank mergers and bank disappointments had noteworthy effects on the month to month changes in the national HHI, and in the territorial HHIs. The fourth significant commitment is that we distinguish two critical determinants of merger estimating amid this time of time. These determinants are the measure of stores every dollar of benefits of the gained banks, and the obligation/value proportions of the procured banks.