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Measuring Concentration in the Japanese Loan and Deposit Markets

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  • UESUGI, Iichiro
  • HIRAGA, Kazuki
  • MANABE, Masashi
  • YOSHINO, Naoyuki

Abstract

This study is the first to exhaustively calculate the degree of concentration in regional banking markets using the outstanding amount of loans and deposits at branches and headquarters of financial institutions located in Japan. Calculating the Herfindahl-Hirschman Index (HHI) for loans and deposits for each prefecture and for each urban employment area for the period 2005–2019, we show differences in the HHI across regions and its development over time. Furthermore, we decompose HHI into two factors, namely one related to the number of financial institutions and the other to deviation from the mean market share.We also examine the extent of the increase in the HHI caused by mergers of financial institutions and its persistence. The main results obtained are as follows. First, loan and deposit HHI show an upward trend; however, the HHI of loans in large metropolitan areas, which were already low, show a trend of further decline. Competition among financial institutions becomes tougher in large metropolitan regions. Second, increases in HHI are not only due to reductions in the number of financial institutions but also to increasing variations in financial institutions’ market share. And third, while the increase in loan HHI due to financial institution mergers is sustained for a certain period, its duration tends to be shorter in regions with a low market concentration.

Suggested Citation

  • UESUGI, Iichiro & HIRAGA, Kazuki & MANABE, Masashi & YOSHINO, Naoyuki, 2022. "Measuring Concentration in the Japanese Loan and Deposit Markets," RCESR Discussion Paper Series DP22-4, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:rcesrs:dp22-4
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    Cited by:

    1. Fujiki, Hiroshi, 2024. "The rise of internet-only banks: Analyzing the bias in cross-prefectural money demand elasticity," Japan and the World Economy, Elsevier, vol. 71(C).
    2. Honjo, Yuji & Ono, Arito & Tsuruta, Daisuke, 2024. "The effect of physical collateral and personal guarantees on business startups," Journal of Economics and Business, Elsevier, vol. 130(C).
    3. Ueda, Kozo, 2024. "Effects of bank branch/ATM consolidations on cash demand: Evidence from bank account transaction data in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 71(C).

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