Interbank Networks in Pre-war Japan:Structure and Implications

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.