In this paper, we explore the structure and implications of interbank networks in
prewar Japan, focusing on director interlocking. We find that approximately half the
banks had at least one connection with another bank through director interlocking, and
that a bank that had connections with other banks was less likely to fail than a bank
without a network. The quality of networks also matters in the sense that the failure
probability of a bank with a network was negatively associated with the profitability of
the connected banks. On the other hand, there is no strong evidence of financial
contagion through networks. In addition, networks of director interlocking contributed
to the stabilization of the financial system through coordinating bank mergers.
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