Were Banks Really at the Center of the Prewar Japanese Financial System

Abstract

For many years, the dominant view of the Japanese financial system before World War II has been that industrial bank-type banks were at the center, and research emphasizing the role played by capital markets has generally been in the minority. Recent years, however, have seen the publication of research highlighting the development of prewar stock markets, which has sparked a debate challenging the accepted theory. This paper contains a comprehensive reconsideration of the roles played by banks and stock markets from both a quantitative and a qualitative perspective. On the quantitative side, it examines the structure of assets and liabilities in the private nonfinancial sector and long-term data on fund-raising by major manufacturing and public-sector enterprises. It concludes that while the private nonfinancial sector was in general strongly dependent on bank borrow-ings, when the focus is narrowed to large enterprises there was a high degree of dependence on equity fund-raising. While diachronic trends can be seen in these characteristics, it is clear that they stem from differences in data coverage and not from any basic changes in systems. On the qualitative side, the paper compares the roles played by banks and stock markets in two areas: resource allocation functions (information production functions

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