Measuring the effect of postal saving privatization on the Japanese banking industry: Evidence from the 2005 general election

In this study, we empirically investigate the effect of the privatization of Japan's postal savings system, the world largest's financial institution, on the country's banking industry, focusing on the general election of the House of Representatives on September 11, 2005. Econometric results show that the privatization of the postal savings system significantly raises the wealth of mega banks but not that of regional banks. Furthermore, this privatization increases the risk to all categories of banks, and the banks that are dependent on personal loans increase their risk in response to the privatization of the postal savings system. These results suggest that incumbent private banks might seek new business or give loans to riskier customers that they had not served before the privatization to gear up for the entry of the Japan Post Bank (JPB) into the market for personal loans. Hence, privatization of the postal savings system boosts competition in the Japanese banking sector.

► We examine the impact of the privatization of Japan's postal savings system. ► Privatization of the PSS raises the wealth of mega banks. ► Privatization of the PSS increases the risk to all categories of banks. ► Especially, banks that are dependent on personal loans increase their risks.