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Interbank Networks in Pre-war Japan:Structure and Implications

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  • Tetsuji Okazaki

    (Faculty of Economics, University of Tokyo)

  • Michiru Sawada

    (Department of Economics, Nagoya Gakuin University)

Abstract

In this paper, we explored the structure and implications of interbank networks in pre-war Japan, focusing on director interlocking. It was found that approximately 60% of the banks had at least one connection with another bank through director interlocking. These connections resulted in the construction of complex networks of banks, not to be reduced to core-periphery structures. Based on this finding, the impact of the interbank networks on the financial performance and the survivability of banks was examined. It was revealed that while a bank with a network was not always more profitable compared to a bank without it, a bank which had a network with profitable banks was more profitable. Concerning the probability of failure, it was found that a bank with a network was less likely to fail than a bank without one. In this case as well, the failure probability of a bank was negatively associated with the profitability of the connected banks. In addition, interbank networks affected on bank mergers. Namely, a bank tended to choose a bank in the same network as a counterpart of the merger, which suggests that interbank networks played a role in coordinating bank mergers.

Suggested Citation

  • Tetsuji Okazaki & Michiru Sawada, 2008. "Interbank Networks in Pre-war Japan:Structure and Implications," CARF F-Series CARF-F-142, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  • Handle: RePEc:cfi:fseres:cf142
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