VANCOUVER (Reuters) - Had Canada's banks been allowed to merge with each other and become the global players several of them hankered to be, would they have fallen deeper into the US sub-prime mortgage crisis?

Yes, probably, analysts say.

And would the banks and their investors - whose shares have already tumbled, on average, by 25 percent since the start of last year - be paying even more dearly for their actions?

Yes to that too, say the analysts.

So should this add weight to the Canadian government's decade-long refusal to countenance mergers among the six big domestic banks?

Absolutely not, the analysts say.

"You can certainly make the argument that their exposure may well have been larger, had they been bigger," said National Bank Financial analyst Robert Sedran.

"But to go so far as to say bank mergers should be disallowed because you are protecting (banks) from themselves? I'm not sure I subscribe to that view," he said.

This year marks the 10th anniversary of the Canadian government's blocking of merger attempts by four of the country's biggest banks.

Royal Bank of Canada and Bank of Montreal had wanted to merge as had Toronto-Dominion Bank and Canadian Imperial Bank of Commerce.

The question of when Ottawa may become more amenable to bank unions remains a perennial favorite.

Canada's new central bank governor, Mark Carney, was recently asked his view on bank mergers. Although he dodged a direct answer, he did hint that big is not always better.

"What we have seen recently in terms of global events is that size has been no protection in terms of contagion or direct impact of some of the strains we've seen in credit markets," the Canadian Press quoted Carney as saying.

"In fact, in some instances, it can be argued that the complexity of some of the largest organisations globally has contributed to some of their difficulties," he said.

Within Canada, it is the smallest banks - regional players such as Canadian Western Bank that had absolutely had no involvement in anything sub-prime-related - that enjoy the highest market ratings.

But size is not the only reason that Canada's banks have had less exposure to the sub-prime debacle. Most obviously, the kind of mortgages handed out to risky borrowers in the US just were not available in Canada.