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Financial development; financial integration; Japan; Great Recession; Lost Decade; banking integration; regional business cycles; transmission of financial shocks; misallocation of credit; trade credit; export finance; silk industry
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Full-Text Articles in Social and Behavioral Sciences
‘By A Silken Thread’: Regional Banking Integration And Pathways To Financial Development In Japan’S Great Recession, Mathias Hoffmann, Toshihiro Okubo
‘By A Silken Thread’: Regional Banking Integration And Pathways To Financial Development In Japan’S Great Recession, Mathias Hoffmann, Toshihiro Okubo
Mathias Hoffmann
Regional differences in banking integration and bank dependence interacted in spreading Japan’s Great Recession after 1990. Nationwide banks were generally more exposed to the crisis than regional ones, but their internal capital markets also substantially dampened the impact of the crisis in prefectures with many bank-dependent small firms. We instrument for modern-day banking inte- gration using the prefecture-level importance of the late-19th-century silk industry: export finance for the silk industry relied on local, cooperative banks. These local banks preserved their comparative advantage in relationship lending to small firms for a century, effectively segmenting regional banking markets during Japan’s lost decade.