Bank Integration and Transmission of Financial Shocks: Evidence from Japan

This paper investigates whether banking integration plays an important role in transmitting financial shocks across geographical boundaries by using a dataset on the branch network of nationwide city banks and prefecture-level dataset on the formation and collapse of the real estate bubble in Japan. The results show that the credit and economic cycle of financially integrated prefectures exhibits higher sensitivity to fluctuation in land prices in cities relative to financially isolated ones. These results suggest nationwide banks can be a source of economic volatility when they pass on the impacts of financial shocks to host economies. (JEL E44, G21, R30)