The bank that was said to have "failed" was still open at the time

March 14, 1927 (Monday) Budget Committee, House of Representatives

The Afternoon Statement

At the Budget Committee meeting that day, two bills to deal with bills left over after the Great Kantō Earthquake were again being discussed. Finance Minister Kataoka, while explaining that to save a failed bank, one must liquidate its assets and find another bank to take them over, stated: "In fact, around noon today, the Watanabe Bank has finally failed." He added that with deposits of about 37 million yen, it had to be bailed out somehow. These words are recorded on page 18 of the minutes.

Accounts of what happened at the Tokyo Watanabe Bank that day vary slightly depending on the record. According to a report released by the Ministry of Finance the next day, around 1:20 p.m., the bank's senior managing director, Watanabe Rokurō, visited the Vice-Minister of Finance and reported that the bank could not pay the clearing balance of approximately 337,000 yen and would have to suspend deposit payments. This news was relayed to the Finance Minister, who was in the Diet. However, the bank continued to raise funds and had finished paying the balance by around 3:00 p.m.

The Bank of Japan's records from that time go even further. They state that the bank paid the balance around 2:00 p.m. and remained open for business as usual until around 4:00 p.m. However, because the minister's statement had spread to the public, the executives conferred and decided to suspend business from the next day, the 15th, along with its sister institution, the Akaji Savings Bank.

Kataoka later explained that he had made the statement because a representative of the bank had come to the ministry and declared they would halt payments, and that it was not a slip of the tongue. Was the suspension of business already decided at the time of his statement, or was the bank forced to suspend business because of it? The history of the Bank of Japan describes this point as "rather delicate." What is certain is that at the time of the statement, the bank was still open.

September 1923–March 1927

The Burden of Earthquake Bills

The story goes back four years. After the Great Kantō Earthquake of September 1923, an emergency imperial ordinance on September 27 stipulated that the Bank of Japan would rediscount bills related to the disaster-stricken areas. If the Bank of Japan incurred losses, the government promised to compensate them up to a limit of 100 million yen. These bills were called "earthquake bills" (shinsai tegata).

The cumulative total of discounted earthquake bills reached 430.82 million yen by the end of March 1924. However, of the earthquake bills held by commercial banks, 206.80 million yen remained unsettled by the end of December 1926. The largest amount owed by a major debtor was 71.89 million yen related to Suzuki & Co. Bank of Japan documents state that many of the major debtors, including Suzuki & Co., had been severely affected not only by the earthquake but also by the economic downturn of 1920.

Two bills to finally settle these remaining amounts were submitted to the Diet on January 26, 1927. The opposition parties criticized them as a bailout for a few capitalists. Even after passing the House of Representatives on March 4, the debate continued. The statement of March 14 was made in the midst of this debate. The history of the Bank of Japan notes that as the debate went on, the banks and debtors holding earthquake bills gradually became known to the public, increasing depositors' anxiety.

March 15–23, 1927

The First Bank Run

On March 19, the Nakai Bank was unable to withstand deposit withdrawals and suspended business. On the 21st, the Sōda, Hachijūshi, and Nakazawa banks announced a temporary two-week suspension starting from the 22nd, and early on the 22nd, the Murai Bank followed suit. According to a table from the Bank of Japan, six banks suspended business on March 22, including those in Kuki, Saitama, and Yamashiro, Kyoto. The number of banks that suspended business between March 15 and 23 reached 11.

Banks sought funds from the Bank of Japan to prepare for deposit withdrawals. On Saturday, the 19th, the Bank of Japan provided loans until around 9:00 p.m., lending approximately 57 million yen from its head office alone over the two days of the 19th and 21st. The Bank of Japan's total lending increased from 227.97 million yen on March 14 to 630.07 million yen on the 23rd, a 2.8-fold increase.

On March 23, when the two bills concerning the earthquake bills were passed, the turmoil subsided. However, the Diet had attached a condition to the bills: to establish a committee to investigate the Bank of Taiwan, which had become an issue during the deliberations.

March 26–April 17, 1927

The Bank of Taiwan and Suzuki Shoten

During the deliberations, it became publicly known that the Bank of Taiwan held the largest amount of earthquake bills, the majority of which were related to Suzuki Shoten. The Bank of Taiwan had its funds withdrawn from the market and faced a liquidity crisis. On the evening of Saturday, March 26, the Bank of Taiwan notified Suzuki Shoten that it would not be able to extend further loans from the 28th.

When this was reported in the newspapers on April 1, stock prices plummeted on April 1 and 2. Suzuki Shoten halted all new transactions on April 5. On April 8, the Sixty-Fifth Bank in Kobe, considered to be affiliated with Suzuki, experienced a bank run and suspended business. The Bank of Japan's Osaka branch lent approximately 32 million yen on the 8th and 9th.

The government decided on a plan to save the Bank of Taiwan. An emergency imperial ordinance would have the Bank of Japan provide emergency loans to the Bank of Taiwan, and if the Bank of Japan incurred losses, the government would compensate them up to 200 million yen. On April 14, this proposal was sent to the Privy Council.

The Privy Council's review committee concluded that the proposal was difficult to approve as it did not conform to the articles of the Imperial Constitution. At the plenary session held on Sunday, April 17, the proposal was rejected. Only the 11 ministers of state voted in favor, with a vote of 19 to 11. The Wakatsuki Cabinet resigned en masse that evening.

April 18–25, 1927

Banks Across the Country Closed Their Doors

The next day, April 18, the Bank of Taiwan suspended business except for its branches on the island of Taiwan, and the Ōmi Bank in Osaka also suspended operations. On the 20th, the Tanaka Cabinet was formed, and Takahashi Korekiyo became Minister of Finance. Then, on the 21st, the prestigious Fifteenth Bank, which handled funds for the Imperial Household Ministry, suspended business. The history of the Bank of Japan records that depositors rushed to bank counters all over the country.

On April 21 alone, the Bank of Japan's lending increased by 601.82 million yen, an amount 57% higher than the previous day. The amount of banknotes in circulation also increased by 639.02 million yen. The Bank of Japan was running short of banknotes and hastily decided to issue 200-yen notes printed on only one side.

According to the National Printing Bureau, these notes were produced while banks nationwide were closed for two days. The front had only a simple offset-printed pattern, and the back was left blank. Because the back was white, they were called "urashiro-satsu" (white-back notes).

On April 22, Emergency Imperial Ordinance No. 96 was promulgated. It postponed for 21 days the payment of money between private individuals that had arisen before April 22 and was due by May 12. However, payments of salaries and wages, withdrawals of deposits for that purpose, and other deposit withdrawals of 500 yen or less per day were not suspended. At the request of Finance Minister Takahashi, banks nationwide voluntarily closed for two days on the 22nd and 23rd.

On Monday, the 25th, the banks opened. The situation in various places was calmer than expected, and the Bank of Japan's lending began to decrease after peaking on this day.

May 1927–1932

Who paid, and what changed

On May 8, two laws were passed in an extraordinary session of the Diet and promulgated on the 9th. One stipulated that the government would compensate the Bank of Japan for losses on special loans up to a limit of 500 million yen, and the other authorized loans to financial institutions in Taiwan up to a limit of 200 million yen. The payment moratorium was lifted on May 13.

By May 8, 1928, special loans under this law had been extended to 114 banks, totaling 761.92 million yen. The largest was 177 million yen to the Fifteenth Bank, which was fully repaid on September 30, 1943. The collateral for these loans included a significant amount of assets other than those normally accepted by the Bank of Japan (regular collateral), such as stocks and real estate.

Between mid-March and late April, 31 banks suspended operations, excluding the Bank of Taiwan. Of these, 3 soon resumed business, and the restructuring of the remaining 28 became an issue.

What changed was the number of banks. On March 29, after the first bank run had subsided, the Banking Act was approved. It came into effect on January 1, 1928, and required banks to have a minimum amount of capital. The government, in principle, did not approve capital increases for individual banks and instead promoted mergers. The number of ordinary banks decreased from 1,537 at the end of 1925 to 782 at the end of 1930, and to 538 at the end of 1932.

Return to March 14, 1927

The weight of a single remark

Let's return to the question at the beginning. Why did a single remark by the minister lead to a nationwide bank holiday? Even before his statement, it was becoming known to the public through Diet debates that 206.8 million yen in unsettled earthquake bills remained, who held them, and who could not pay. The statement named one of those banks. The history of the Bank of Japan also states that while the crisis was directly triggered by this remark, depositor anxiety had been growing even before then.

From there, the supports were removed one by one. The Bank of Taiwan stopped lending to Suzuki & Co., the government's rescue plan was rejected by the Privy Council, the cabinet fell, and the Fifteenth Bank closed its doors. What stopped the collapse was a 601.82 million yen increase in loans from the Bank of Japan in a single day, banknotes with blank backs, and a 21-day payment moratorium.

19 years later, in 1946, the state again froze the withdrawal of deposits. The history of the Bank of Japan, comparing the 1927 payment moratorium with the 1946 deposit freeze, states that their nature was fundamentally different. The 1927 measure was intended to give time to those who had become unable to pay; the period was fixed from the outset, and withdrawals for salaries were not suspended.