ABSTRACT
Canada’s five major banks have realized inadequate returns in their large corporate
lending businesses during the past several business cycles (Paul-Chowdhury, 1995). This
lack of profitability over the business cycle is largely due to the banks’ history of lending
heavily in a few credit-hungry sectors at deteriorating margins and with increasingly
lenient loan structu res, then showing unexpectedly high levels of problem loans when
these sectors experience difficulty. Since 1982, Canadian banks have suffered three
episodes of heavy, sector-specific loan losses: in developing country (LDC) debt in the
early 1980s, in the energy sector in the early to mid-1980s, and in commercial real estate
from 1990 to 1993.
