Has Competition in the Japanese Banking Sector Improved?



However, with respect to these deposits, the minimum amount that could be deposited was
restricted. For example, in 1985, each jumbo time deposit account was required to hold an
amount of more than one billion yen. This restriction was gradually relaxed up until 1992.
In 1994, all the deposit interest rates were deregulated. However, interest rates fell rapidly
from 1991 to 1996, suggesting that banks might not have been under deposit interest rate
competition.

On the other hand, loan interest rates seem to have moved more freely since 1973. In
Figure 1, we show loan interest rates over the period 1956 to 2001. Loan interest rates
apparently began to change more sharply from 1973. Table 1 shows that the coefficient of
variation of loan interest rates jumped from 0.055 in the high growth period (1961-1972) to
0.20 in the low growth period (1973-1983). The correlation coefficient between loan
interest rates and the call rate increased from 0.80 to 0.91 in the same period, while the
coefficient of variation of the call market did not change substantially during this period.
These facts suggest that the market environment for Japanese banks drastically changed in
the late 1970s, which may have affected competition among them.

In 1993, regulation regarding the segregation of business lines in financial industries
was relaxed. Banks and securities companies were allowed to enter each other’s
businesses by establishing subsidiaries. Although banks established many securities
company subsidiaries based on this deregulation, no securities companies established bank
subsidiaries. This is probably because banks had stronger business power than securities



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