This paper examines the efficiency and productivity performance of Japanese commercial banking
in the period of 1983 to 1996. We study the impact of the alternative organizational forms on Japanese bank
performance. The keiretsu effect and the extent of non-performing loans (NPLs) are both considered in our
analysis. By applying the advanced cross-frontier analysis, we show that the two organizational forms we
examine, city and regional banks, are irreplaceable facing their production environment in terms of efficiency
performance. In addition, using a longer-term data, we show that the productivity of Japanese banks increases
before the collapse of bubble but decreases thereafter after bubble collapsed. The regional factors such as local
economic downturns may have caused productivity decrease for regional banks than for city banks.
Throughout our sample period, it is the technological change, not efficiency change, that explains the
productivity change of Japanese banks. Finally, the results suggest that considering the impact of nonperforming
loans is important in the productivity analysis of Japanese banking.