The Impact of the Bank of Japan’s Low-Interest Rate Policy on the Japanese Banking Sector
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The Impact of the Bank of Japan’s Low-Interest Rate Policy on the Japanese Banking Sector
Gerstenberger, Juliane | Schnabl, Gunther
Credit and Capital Markets – Kredit und Kapital, Vol. 54 (2021), Iss. 4 : pp. 533–562
1 Citations (CrossRef)
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Juliane Gerstenberger, Seelenberger Straße 4, 60489 Frankfurt, Germany.
Prof. Dr. Gunther Schnabl, Leipzig University, Institute of Economic Policy, Grimmaische Straße 12, 04109 Leipzig.
Cited By
-
Niedrigzinspolitik und Sparkultur in Japan: Implikationen für die Wirtschaftspolitik
Schnabl, Gunther
Sepp, Tim
ORDO, Vol. 72-73 (2022), Iss. 1 P.392
https://doi.org/10.1515/ordo-2023-2001 [Citations: 0]
References
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Google Scholar -
Murai, T./Schnabl, G. (2021): “The Japanese banks in the lasting low-, zero- and negative-interest rate environment, Credit and Capital Markets 54, 1, pp. 1–16.
Google Scholar -
Odeck, J. (2009): Statistical precision of DEA and malmquist indices: A bootstrap application to Norwegian grain producers. Omega, Vol. 37 No. 5, pp. 1007–1017.
Google Scholar -
Peek, J./Rosengren, E. S. (2005): “Unnatural selection: perverse incentives and the misallocation of credit in Japan”, The American Economic Review, Vol. 95 No. 4, pp. 1144–1166.
Google Scholar -
Posen, A. S. (2000): “The political economy of deflationary monetary policy”, in Mikitani, R. and Posen, A. S. (eds.), Japan’s financial crisis and its parallels to U.S. experience, Institute for International Economics, Washington, DC, pp. 149–166.
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Google Scholar -
Sarmiento, M./Galán, J. E. (2015): “The influence of risk-taking on bank efficiency: Evidence from Colombia”, Banco de España Working Paper, No. 1537.
Google Scholar -
Schnabl, G. (2015): “Monetary policy and structural decline: Lessons from Japan for the European crisis”, Asian Economic Papers, Vol. 14 No. 1, pp. 124–150.
Google Scholar -
Schnabl, G. (2020): Japans Banken in der Krise, Springer Gabler, Wiesbaden.
Google Scholar -
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Google Scholar -
Weill, L. (2004): “Measuring cost efficiency in European banking: A comparison of frontier techniques”, Journal of Productivity Analysis, Vol. 21 No. 2, pp. 133–152.
Google Scholar -
Wilson, P. W. (2008): “FEAR. A software package for frontier efficiency analysis with R”, Socio-Economic Planning Sciences, Vol. 42 No. 4, pp. 247–254.
Google Scholar -
Yoshino, N./Taghizadeh-Hesary (2016): “Decline in oil prices and the negative interest rate policy in Japan”, ADBI Working Paper, No. 600.
Google Scholar -
Alessandri, P./Nelson, B. (2015): “Simple banking: profitability and the yield curve”, Journal of Money, Credit and Banking, Vol. 47 No. 1, pp. 143–175.
Google Scholar -
Altunbas, Y./Evans, L. /Molyneux, P. (2001): “Bank ownership and efficiency”, Journal of Money, Credit and Banking, Vol. 33 No. 4, pp. 926–954.
Google Scholar -
Altunbas, Y./Liu, M.-H./Molyneux, P./ Seth, R. (2000): “Efficiency and risk in Japanese banking”, Journal of Banking & Finance, Vol. 24 No. 10, pp. 1605–1628.
Google Scholar -
Assaf, A. G./Barros, C. P./Matousek, R. (2011): “Productivity and efficiency analysis of Shinkin banks. Evidence from bootstrap and Bayesian approaches”, Journal of Banking & Finance, Vol. 35 No. 2, pp. 331–342.
Google Scholar -
Azad, A. S./Yasushi, S./Fang, V./Ahsan, A. (2014): “Impact of policy changes on the efficiency and returns-to-scale of Japanese financial institutions. An evaluation”, Research in International Business and Finance, Vol. 32, pp. 159–171.
Google Scholar -
Bank of Japan (2005): Financial System Report 2005, BOJ Reports & Research Papers.
Google Scholar -
Bank of Japan (2006): Financial System Report 2006, BOJ Reports & Research Papers.
Google Scholar -
Bank of Japan (2008): Financial System Report – September 2008, BOJ Reports & Research Papers.
Google Scholar -
Bank of Japan (2012): Financial System Report – April 2012, BOJ Reports & Research Papers.
Google Scholar -
Bank of Japan (2016): Financial System Report – April 2016, BOJ Reports & Research Papers.
Google Scholar -
Banker, R. D./Charnes, A. /Cooper, W. W. (1984): “Some models for estimating technical and scale inefficiencies in Data Envelopment Analysis”, Management Science, Vol. 30 No. 9, pp. 1078–1092.
Google Scholar -
Bayoumi, T. A./Collyns, C. (2000): Post-Bubble Blues: How Japan responded to asset price collapse, International Monetary Fund, Washington, DC.
Google Scholar -
Benston, G. J./Smith, C. W. (1976): “A transactions cost approach to the theory of financial intermediation”, The Journal of Finance, Vol. 31 No. 2, pp. 215–231.
Google Scholar -
Berger, A. N./Mester, L. J. (1997): “Inside the black box. What explains differences in the efficiencies of financial institutions?”, Journal of Banking & Finance, Vol. 21 No. 7, pp. 895–947.
Google Scholar -
Borio, C./Gambacorta, L./Hofmann, B. (2017): “The influence of monetary policy on bank profitability”, International Finance, Vol. 20 No. 1, pp. 48–63.
Google Scholar -
Busch, R./Memmel, C. (2015): “Banks’ net interest margin and the level of interest rates”, Deutsche Bundesbank Discussion Paper, No.16/2015.
Google Scholar -
Caballero, R. J./Hoshi, T./Kashyap, A. K. (2008): “Zombie lending and depressed restructuring in Japan”, American Economic Review, Vol. 98 No. 5, pp. 1943–1977.
Google Scholar -
Charnes, A./Cooper, W. W./Rhodes, E. (1978): “Measuring the efficiency of decision making units”, European Journal of Operational Research, Vol. 2 No. 6, pp. 429–444.
Google Scholar -
Claessens, S./Coleman, N. S./Donnelly, M. S. (2017): “‘Low-for-long’ interest rates and banks’ interest margins and profitability: cross-country evidence”, FRB International Finance Discussion Papers, No. 1197.
Google Scholar -
Coelli, T. J./Prasado Rao, D. S./O’Donnell, C. J./Battese, G. E. (2005): An introduction to efficiency and productivity analysis, 2nd ed., Springer, New York.
Google Scholar -
DeYoung, R. (1994): “Fee-based services and cost efficiency in commercial banks: Proceedings”. EPA Working Paper No. 94-3 Office of the Comptroller of the Currency.
Google Scholar -
Drake, L./Hall, M. J. (2003): “Efficiency in Japanese banking: an empirical analysis”, Journal of Banking & Finance, Vol. 27 No. 5, pp. 891–917.
Google Scholar -
Drake, L./Hall, M. J./Simper, R. (2006): “The impact of macroeconomic and regulatory factors on bank efficiency. A non-parametric analysis of Hong Kong’s banking system”, Journal of Banking & Finance, Vol. 30 No. 5, pp. 1443–1466.
Google Scholar -
Drake, L./Hall, M. J./Simper, R. (2009): “Bank modelling methodologies. A comparative non-parametric analysis of efficiency in the Japanese banking sector”, Journal of International Financial Markets, Institutions and Money, Vol. 19 No. 1, pp. 1–15.
Google Scholar -
Färe, R./Grosskopf, S./Lovell, C. A. K. (1985): The measurement of efficiency of production, Kluwer-Nijhoff, Boston.
Google Scholar -
Farrell, M. J. (1957): “The measurement of productive efficiency”, Journal of the Royal Statistical Society. Series A, Vol. 120 No. 3, p. 253.
Google Scholar -
Fukuyama, H. (1993): “Technical and scale efficiency of Japanese commerical banks. A non-parametric approach”, Applied Economics, Vol. 25 No. 8, pp. 1101–1112.
Google Scholar -
Fukuyama, H./Weber, W. L. (2008): “Estimating inefficiency, technological change and shadow prices of problem loans for regional banks and shinkin banks in Japan”, The Open Management Journal, Vol. 1 No. 1, pp. 1–11.
Google Scholar -
Fukuyama, H./Weber, W. L. (2009): “A directional slacks-based measure of technical inefficiency”, Socio-Economic Planning Sciences, Vol. 43 No. 4, pp. 274–287.
Google Scholar -
Gerstenberger, J. (2017): Declining interest rates and German SME’s use of bank debt, mimeo.
Google Scholar -
Golany, B./Yu, G. (1997): “Estimating returns to scale in DEA”, European Journal of Operational Research, Vol. 103 No. 1, pp. 28–37.
Google Scholar -
Hancock, D. (1985): “Bank profitability, interest rates, and monetary policy”, Journal of Money, Credit and Banking, Vol. 17 No. 2, pp. 189.
Google Scholar -
Hayek, F. A. von (1968): Competition as a discovery procedure, Quarterly Journal of Austrian Economics, Vol. 5 No. 3, pp. 9–23.
Google Scholar -
Hosono, K./Sakai, K./Tsuru, K. (2009): “Consolidation of banks in Japan: causes and consequences”, in Ito, T. and Rose, A. (eds.), Financial sector development in the Pacific Rim, NBER-East Asia seminar on economics, University of Chicago Press, Chicago, pp. 265–309.
Google Scholar -
Ishikawa, A./Tsuchiya, S./Nishioka, S. (2013): “Financial institutions’ efforts to support the business conditions of small and medium-sized firms: Intermediation services utilizing corporate information and customer networks”, Bank of Japan Review, Vol. 2013 No. January, pp. 1–7.
Google Scholar -
Ishikawa, D./Tsutsui, Y. (2005): “Has the credit crunch occurred in Japan in 1990s?”, The Research Institute of Economy, Trade and Industry Discussion Paper Series, 06-E-012.
Google Scholar -
JBA (2017): Japanese Bankers Association. http://www.zenginkyo.or.jp/en. [Accessed: 2017-03-11].
Google Scholar -
Koo, R. C. (2003): Balance sheet recession: Japan’s struggle with uncharted economics and its global implications, John Wiley & Sons.
Google Scholar -
McKillop, D. G./Glass, J. C./Ferguson, C. (2002): “Investigating the cost performance of UK credit unions using radial and non-radial efficiency measures”, Journal of Banking & Finance, Vol. 26 No. 8, pp. 1563–1591.
Google Scholar -
McKillop, D. G./Glass, J./Morikawa, Y. (1996): “The composite cost function and efficiency in giant Japanese banks”, Journal of Banking & Finance, Vol. 20 No. 10, pp. 1651–1671.
Google Scholar -
Murai, T./Schnabl, G. (2021): “The Japanese banks in the lasting low-, zero- and negative-interest rate environment, Credit and Capital Markets 54, 1, pp. 1–16.
Google Scholar -
Odeck, J. (2009): Statistical precision of DEA and malmquist indices: A bootstrap application to Norwegian grain producers. Omega, Vol. 37 No. 5, pp. 1007–1017.
Google Scholar -
Peek, J./Rosengren, E. S. (2005): “Unnatural selection: perverse incentives and the misallocation of credit in Japan”, The American Economic Review, Vol. 95 No. 4, pp. 1144–1166.
Google Scholar -
Posen, A. S. (2000): “The political economy of deflationary monetary policy”, in Mikitani, R. and Posen, A. S. (eds.), Japan’s financial crisis and its parallels to U.S. experience, Institute for International Economics, Washington, DC, pp. 149–166.
Google Scholar -
Samuelson, P. (1945): “The effect of interest rate increases on the banking system”, The American Economic Review, Vol. 35 No.1, pp. 16–27.
Google Scholar -
Sarmiento, M./Galán, J. E. (2015): “The influence of risk-taking on bank efficiency: Evidence from Colombia”, Banco de España Working Paper, No. 1537.
Google Scholar -
Schnabl, G. (2015): “Monetary policy and structural decline: Lessons from Japan for the European crisis”, Asian Economic Papers, Vol. 14 No. 1, pp. 124–150.
Google Scholar -
Schnabl, G. (2020): Japans Banken in der Krise, Springer Gabler, Wiesbaden.
Google Scholar -
Schumpeter, J. A. (1942): Capitalism, socialism, and democracy, Harper and Brothers, New York.
Google Scholar -
Sealey, C. W./Lindley, J. T. (1977): “Inputs, outputs, and a theory of production and cost at depository financial institutions”, The Journal of Finance, Vol. 32 No. 4, p. 1251.
Google Scholar -
Sekine, T./Kobayashi, K./Saita, Y. (2003): “Forbearance lending: The case of Japanese firms”, Monetary and Economic Studies, Vol. 21 No. 2, pp. 69–92.
Google Scholar -
Shephard, R. W. (1970): Theory of cost and production functions, Princeton University Press, Princeton.
Google Scholar -
Simar, L./Wilson, P. W. (1998): “Sensitivity analysis of efficiency scores: How to bootstrap in nonparametric frontier models”, Management Science, Vol. 44 No. 1, pp. 49–61.
Google Scholar -
Simar, L./Wilson, P. W. (2000): “Statistical inference in nonparametric frontier models: The state of the art”, Journal of Productivity Analysis, Vol. 13 No. 1, 49–78.
Google Scholar -
Simar, L./Wilson, P. W. (2007): “Estimation and inference in two-stage, semi-parametric models of production processes”, Journal of Econometrics, Vol. 136 No. 1, pp. 31–64.
Google Scholar -
Tauchmann, H. (2016): “SIMARWILSON: Stata module to perform Simar & Wilson efficiency analysis“, Statistical Software Components. S458156, Boston College Department of Economics, revised 23 May 2016.
Google Scholar -
Weill, L. (2004): “Measuring cost efficiency in European banking: A comparison of frontier techniques”, Journal of Productivity Analysis, Vol. 21 No. 2, pp. 133–152.
Google Scholar -
Wilson, P. W. (2008): “FEAR. A software package for frontier efficiency analysis with R”, Socio-Economic Planning Sciences, Vol. 42 No. 4, pp. 247–254.
Google Scholar -
Yoshino, N./Taghizadeh-Hesary (2016): “Decline in oil prices and the negative interest rate policy in Japan”, ADBI Working Paper, No. 600.
Google Scholar
Abstract
This paper presents an analysis of the impact of the Bank of Japan’s low-interest rate policy on the banking sector in the wake of the 1998 Japanese financial crisis. We show how the low-cost liquidity provision as a means to stabilize banks has created a growing gap between deposits and loans in the financial system and how the low-interest rate policy has compressed interest margins as the traditional source of banks’ income. Efficiency scores are compiled to estimate the effect of the Bank of Japan’s monetary policy on banks’ technical efficiency. The estimation results provide evidence that the Japanese monetary policy has contributed to declining efficiency in the banking sector, despite – or possibly because of – the increasing concentration within this sector.