Institute for New Economic Thinking at the Oxford Martin School, United Kingdom, CABDyN Complexity Center, Saïd Business School, University of Oxford, United Kingdom, doi:10.1016/j.econlet.2016.02.024

Have banks become more similar? This paper tests this hypothesis using data on Japanese banks’ loan portfolios over the period 1996–2013. Using various similarity measures, the authors find that banks have in fact become less similar over time. This finding would suggest that concerns over a more homogeneous banking system are not necessarily based on facts. However, they also find that the Japanese banking system has become increasingly concentrated, and that the largest banks in fact have become more similar over time. It is argued that theoretical frameworks are needed that allow to disentangle the interplay between diversity and concentration and their impact on systemic risk.