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

Tetsuji Okazaki · Michiru Sawada

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Banking stability, regulation, efficiency Historical Economic and Social Studies Banking Systems and Strategies

Abstract

This article investigates the impact of bank consolidations promoted by government policy, using data from pre-war Japan when the Ministry of Finance promoted bank consolidations through the Bank Law of 1927. We argue that policy-promoted consolidation had a positive effect on deposit growth, especially in the period when the financial system was unstable. On the other hand, it had a negative effect on profitability, particularly when there was no dominant bank among the participants or when more than two banks participated in the consolidation. Policy-promoted consolidation in such cases was likely to be accompanied by large organisational cost.

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References

1999The consolidation of the financial services industry: Causes, consequences, and implications for the future 1997Diversification, Size, and Risk at Bank Holding Companies 1997The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function 1992Changes in corporate performance associated with bank acquisitions 1992Megamergers in Banking and the Use of Cost Efficiency as an Antitrust Defense 1996EFFICIENT BANKING UNDER INTERSTATE BRANCHING 1995Motivations for Bank Mergers and Acquisitions: Enhancing the Deposit Insurance Put Option versus Earnings Diversification 2005Bank Supervision, Regulation, and Instability During the Great Depression

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2007Micro-aspects of monetary policy: Lender of Last Resort and selection of banks in pre-war Japan 2009Liquidity risk and bank portfolio management in a financial system without deposit insurance: Empirical evidence from prewar Japan

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