An analysis of performance of US (profit-maximising) and Japanese (kieretsu) banks in the 1990s

Abstract

In our paper, we analyse the profitability of US and Japanese commercial banks and their significant determinants. Where appropriate and as a new dimension from previous studies, we relate the difference in findings between the banks in the two countries to the ir characteristics - profit-maximising and keiretsu banks respectively. US banks are much more profitable than the Japanese counterparts during the sample period; loan quality explains much of the difference. Net interest margin has been decreasing for both countries. Its findings also show a glimpse of the impact of bank- borrowers relationship on profitability, with a long term and obligated relationship like that in a keiretsu structure offers a more stable net interest margin. Our other findings suggest two matters of interest for the regulators. Firstly, the US specialist banking structure and the segmentation of the Japanese financial system might not be as restrictive for the banks to diversify as they seem. Secondly, regulators might consider measures to protect the interests of the small or "captive" borrowers, as there is evidence to suggest that they have been charged higher interest rates than their larger counterparts.