Effects of Bank Consolidation Promotion Policy: Evaluating the Bank Law in 1927 Japan ( Revised as CARF-F-058 (2006); Published in "Financial History Review", April 2007, v. 14, iss. 1, pp. 29-61. )

Abstract

This paper investigates the impact of bank consolidations promoted by government policy, using data from prewar Japan, when the financial authorities promoted them by dint of the Bank Law in 1927. It finds that the policy-promoted consolidation had a positive effect on the deposit growth, especially during the period of a major financial crisis. On the other hands, it had a negative effect on the profitability, particularly, in case there was no dominant bank among the participants or more than two banks participated in the consolidation. The policy-promoted consolidation in such cases was likely to be accompanied by large organizational cost.