The Japanese banking system in its pre-war period had, it has been pointed out, structure and function much different from its western predecessors. Its character and relation with the condition of industry still remain to be explained. This article aims to clarify the operational linkage between banking and industry with the study on the local banks in Nagano-prefecture in the 1920's. Local banks in Nagano-prefecture, which had become a leading area of sericulture and silk-reeling industry, developed in conjunction with these industries. In view of asset, customers and process of merger, local banks in Nagano-prefecture can be classified into two groups ; (I) the first group (Dai Jyuku-Bank, Rokujyusan-Bank, etc.), relatively large in their size, financed mainly to silk-reeling companies, merging other banks; (II) the second group (Shiga-Bank, Komatsubara-Bank, etc.), small in their size, financed to peasants being engaged in small-scale sericulture, local merchants and landlords. The banks of this group were finally merged into the banks of first group or went bankrupt. After this economic crisis of 1920, the economic conditions surrounding these two groups of banks had drastically changed. The banks of first group, which were under financial control of larger metropolitan banks and carried out its function as a necessary part in the supply of fund from metropolitan banks to producers (i.e. the system of industrial finance called "Seishi-Kinyu"), became buffer against the deteriorating financial conditions. Increasing difficulties in the silk-reeling industry brought large amount of uncollectable loan to the banks of this group. As to the banks of second group, the blow of economic crisis of 1920 was harder than that of the first group. The attempt of silk-reeling companies to shift their difficulties on to peasants being engaged in sericulture and local merchants was, in addition to the fall in the price of cocoon, caused such damage to those peasants and merchants that their debts to the banks were almost fixed and uncollectable. Due to scantiness of their own capital and deposit, the banks of second group couldn't bear against that blow, and were driven to bankruptcy or forced to merger. As a result of this process, local banks in Nagano-prefecture were much more dependent on the metropolitan banks, especially on Zaibatsu Banks.
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