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ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day. Visit the ROB Insight homepage for analysis available only to subscribers.

Despite chronic concerns about the Canadian economy, the big banks continue to do just fine, thank you very much. A strong round of third-quarter earnings reports and some dividend hikes this week might lead some to wonder what all the fuss has been about.

The bad news is the outlook remains cloudy for the banks, coming off a two-decade run of ever-increasing borrowing by Canadians that has begun to slow. The good news? Inside those clouds may be a silver lining.

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Few analysts would bet on a continuation of the galloping growth rates we've come to expect from the banks since the early 1990s. But considering the state of Canada's overindebted consumers and the uncertain state of our resource-heavy economy at a time when emerging markets are in retreat, earnings growth in the third quarter was better than expected – which is to say "not great but not terrible," as National Bank Financial analyst Peter Routledge put it.

A closer look, however, reveals that provisions for credit losses were "unusually low" and below expectations (for example, that measure came in at $77-million for Bank of Montreal, compared with consensus analyst expectations of $189-million). Combined with sluggish revenues, that suggests the bearish case against the banks shouldn't yet be put to pasture. Those credit losses could easily balloon should the gas come out of an economy, which hasn't happened yet. "I just think that which made earnings strong this quarter will make earnings weak" come spring 2014, Mr. Routledge said. "We could have a period of less robust earnings performance next year."

But the banks may have a trick up their sleeve. A review of quarterly data posted by the Office of the Superintendent of Financial Institutions, the banking regulator, shows that, after a sharp reduction in spending intensity by domestic banks (also known as the "efficiency ratio,"* a measurement of total non-interest expenses divided by net interest and other income) coming out of the Great Recession, they have seemingly put the brakes on cost controls over the past year and a half , with no meaningful improvements in their ratio of costs-to-revenues despite ever-increasing top lines.

That suggests the banks still have ample levers to pull to reduce spending should declining revenues start to pressure margins. (A recent analysis by Wickham Investment Counsel suggests that Canadian banks, while far from being the biggest spendthrifts among their North American peers, could be a lot more efficient). That could come in any number of areas, such as marketing, new strategic initiatives, even staffing. After 20 years of growth in personal and commercial lending and generally expanding fortunes, you have to figure the banks have room to squeeze should the need arise.

Of course, that wouldn't be good for other sectors of the economy; spending by domestic banks on professional fees, computers and equipment and advertising, public relations and business development alone totalled more than $11-billion last year. But if you are a bank shareholder whose prime concern is earnings and dividend growth, know that a bit of knife-sharpening could create a reasonable cushion for the banks.

Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.

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