Bank run during the Showa Financial Crisis

The was a financial panic in 1927, during the first year of the reign of Emperor

Hirohito Emperor , commonly known in English-speaking countries by his personal name , was the 124th emperor of Japan, ruling from 25 December 1926 until his death in 1989. Hirohito and his wife, Empress Kōjun, had two sons and five daughters; he was ...

of Japan, and was a foretaste of the

Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...

. It brought down the government of

Prime Minister A prime minister, premier or chief of cabinet is the head of the cabinet and the leader of the ministers in the executive branch of government, often in a parliamentary or semi-presidential system. Under those systems, a prime minister is ...

Wakatsuki Reijirō Baron was a Japanese politician and Prime Minister of Japan. Early life Wakatsuki Reijirō was born on 21 March 1866, in Matsue, Izumo Province (present day Shimane Prefecture), the second son of samurai foot soldier (''ashigaru'') Okumura S ...

and led to the domination of the ''

zaibatsu is a Japanese term referring to industrial and financial vertically integrated business conglomerates in the Empire of Japan, whose influence and size allowed control over significant parts of the Japanese economy from the Meiji period unt ...

'' over the Japanese

banking industry {{set category, first= industries (branches of an economy), alternative=industries, topic=Industry (economics) For other meanings of "industries", see :Industries. ...

. The Shōwa Financial Crisis occurred after the post–

World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was List of wars and anthropogenic disasters by death toll, one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, ...

business boom in Japan. Many companies invested heavily in increased production capacity in what proved to be an

economic bubble An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be c ...

. The post-1920

economic slowdown In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...

and the

Great Kantō earthquake Great may refer to: Descriptions or measurements * Great, a relative measurement in physical space, see Size * Greatness, being divine, majestic, superior, majestic, or transcendent People * List of people known as "the Great" *Artel Great (born ...

of 1923 caused an

economic depression An economic depression is a period of carried long-term economical downturn that is result of lowered economic activity in one major or more national economies. Economic depression maybe related to one specific country were there is some economic ...

, which led to the failures of many businesses. The government intervened through the

Bank of Japan The is the central bank of Japan. Nussbaum, Louis Frédéric. (2005). "Nihon Ginkō" in The bank is often called for short. It has its headquarters in Chūō, Tokyo. History Like most modern Japanese institutions, the Bank of Japan was foun ...

by issuing discounted "earthquake bonds" to overextended banks. In January 1927, when the government proposed to redeem the bonds, rumor spread that the banks holding these bonds would go bankrupt. In the ensuing

bank run A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...

, 37 banks throughout Japan (including the

Bank of Taiwan The Bank of Taiwan (BOT, , see below) is a commercial bank headquartered in Taipei, Taiwan. It is owned by the government of Taiwan. History The Bank of Taiwan was established as Taiwan's central bank in 1899, during Japanese rule. ...

), and the second-tier ''zaibatsu''

Suzuki Shoten is a Japan, Japanese multinational corporation headquartered in Minami-ku, Hamamatsu, Japan. Suzuki manufactures automobiles, motorcycles, All-terrain vehicle, all-terrain vehicles (ATVs), outboard motor, outboard marine engines, wheelchairs ...

, went under. Prime Minister

attempted to have an emergency decree issued to allow the Bank of Japan to extend emergency loans to save these banks, but his request was denied by the

Privy Council A privy council is a body that advises the head of state of a state, typically, but not always, in the context of a monarchic government. The word "privy" means "private" or "secret"; thus, a privy council was originally a committee of the mo ...

, and he was forced to resign. Wakatsuki was succeeded by Prime Minister

Tanaka Giichi Baron was a general in the Imperial Japanese Army, politician, cabinet minister, and the Prime Minister of Japan from 1927 to 1929. Early life and military career Tanaka was born as the third son of a low-ranking ''samurai'' family in the se ...

, who managed to control the situation with a three-week

bank holiday A bank holiday is a national public holiday in the United Kingdom, Republic of Ireland and the Crown Dependencies. The term refers to all public holidays in the United Kingdom, be they set out in statute, declared by royal proclamation or h ...

and the issuance of emergency loans; however, as a result of the collapse of many smaller banks, the large financial branches of the five great ''zaibatsu'' houses dominated Japanese finances until the end of

World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...

References

Sources

* * {{DEFAULTSORT:Showa Financial Crisis Empire of Japan 1927 in Japan Economic history of Japan Financial crises 1927 in economics