Has the banking system become more homogeneous? Evidence from banks' loan portfolios

Have banks become more similar? In this paper we test this hypothesis using data on Japanese banks' loan portfolios over the period 1996-2013. Using various similarity measures, we find that banks have in fact become less similar over time. This finding would suggest that concerns over a more homogeneous banking system are not necessarily based on facts. However, we also find that the Japanese banking system has become increasingly concentrated, and that the largest banks in fact have become more similar over time. We need theoretical frameworks that allow to disentangle the interplay between diversity and concentration and their impact on systemic risk.