A Comparison of National Banks in Japan and the United States between 1872 and 1885

In 1872, Japan established a national banking system modeled closely on that in existence in the United States at the time. The experience of the two countries with national banking was very different, however. The paper documents that the Japanese national banking system was smaller, less highly leveraged, and did less financial intermediation than the U.S. system. The paper describes the national banking legislation in the two countries and presents evidence on their different banking experiences. It then argues that, for the most part, the differences were not due to subtle differences in the banking legislation in the two countries. Rather, it argues that the differences were due to Japan's lesser degree of experience with banks and less developed banking institutions when the system was adopted. There also was more concern with establishing banknotes of national banks as a replacement for government-issued paper currency in Japan.