“Effects of a bank consolidation promotion policy: Evaluating Bank Law in 1927 Japan” ;forthcoming in Financial History Review (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 pre-war Japan when the Ministry of Finance promoted bank consolidations by dint of the Bank Law of 1927. It is found 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 organizational cost.