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Effects of bank consolidation promotion policy: Evaluating the Bank Law in 1927 Japan

Tetsuji Okazaki and Michiru Sawada

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: In recent years, there has been a wave of bank consolidations that has spread across the world, and bank consolidation has been one of the major issues of the research on banking and finance. This paper explores the role of government in bank consolidations, using the data on prewar Japan. The data on prewar Japan are useful, because not only there were numerous bank consolidations, but also we can identify consolidations promoted by the government policy. The Bank Law of 1927 set the minimum capital criterion for banks, which came to be a powerful measure for the government to promote consolidations. In this paper, we identified policy-promoted consolidations referring to the minimum capital of the bank, and examined the effects of policy-promoted consolidations in comparison with other consolidations. It was confirmed that policy-promoted consolidations mitigated the financial crisis by enhancing the ability of the bank to collect deposits, under the condition that the financial system was exposed to serious negative shocks. On the other hand, policy-promoted consolidations had negative aspects. They were accompanied by large organizational costs, and decreased bank profitability.

Pages: 23 pages
Date: 2004-01
New Economics Papers: this item is included in nep-his
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Citations: View citations in EconPapers (10) Track citations by RSS feed

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https://www.rieti.go.jp/jp/publications/dp/04e004.pdf (application/pdf)

Related works:
Working Paper: Effects of a bank consolidation promotion policy: Evaluating Bank Law in 1927 Japan (2006) Downloads
Working Paper: Effects of Bank Consolidation Promotion Policy: Evaluating the Bank Law in 1927 Japan (2004) Downloads
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