The global economy and Japanese bank performance

Abstract

Outlines the characteristics of Japanese keiretsu (vertically integrated firms interlinked through industrial groups) and reviews the history of financial keiretsu and associated research. Compares the performance of Japanese and US banks 1989‐2000; and examines Japanese bank profit inefficiency by developing a mathematical model and applying it to 1992‐1999 bank data. Shows a “zig‐zag” pattern of profitability change over the period and concludes that the Japanese banking industry is “barely holding its own in profitability”. Points out the particular importance of this to the real economy in Japan and briefly considers the implications for government policy.