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The Bright and Dark Sides of a Central Bank's Financial Support to Local Banks after a Natural Disaster: Evidence from the Great Kanto Earthquake, 1923 Japan

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  • TETSUJI OKAZAKI
  • TOSHIHIRO OKUBO
  • ERIC STROBL

Abstract

The Great Kanto Earthquake of 1923 caused serious damage to firms and banks in Yokohama City. We explore the role of the financial support by the Bank of Japan (BoJ) through local banks in a firm's survival and recovery from the natural disaster. We find that the small‐ and medium‐sized firms (SMEs) that had a relatively large correspondent bank with a large number of bills rediscounted by BoJ had a higher likelihood of survival but lower growth after the earthquake. Liquidity supply by the central bank for recovery from a negative shock can have both positive and negative impacts.

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  • Tetsuji Okazaki & Toshihiro Okubo & Eric Strobl, 2024. "The Bright and Dark Sides of a Central Bank's Financial Support to Local Banks after a Natural Disaster: Evidence from the Great Kanto Earthquake, 1923 Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(6), pages 1439-1477, September.
    • Handle: RePEc:wly:jmoncb:v:56:y:2024:i:6:p:1439-1477
    DOI: 10.1111/jmcb.13018
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