Financial Crisis And Bank Management In Japan (1997 To 2016): Building A Stable Banking System (palgrave Macmillan Studies In Banking And Financial Institutions)

This book explores the challenges faced by the Japanese economy and the Japanese banking industry following the financial crisis that emerged around the turn of the last millennium. The author explores how the Japanese financial crisis of the late 1990s engendered huge restructuring efforts in the banking industry, which eventually led to even more sweeping changes of the economic system and long-term deflation in the 2000s. The discussion begins with an overview of the unconventional monetary policy launched by the Bank of Japan at this time, while banking administrative policies maintained their strict code of governance. The author describes how, just as recovery seemed possible, the twin disasters of the Lehman shock and the Great East Japan Earthquake buffeted the recovering economy, and pushed Japan again into deflation. The book also looks to the very recent past, with the sudden advent of Abenomics in 2013, with its three-pronged approach, which was intended to break the deflationary mindset. Finally, the author projects what the future of the banking industry in Japan might encompass, as looming demographic changes gradually threaten both the economy and the banking industry. Dedication 6 Preface 8 Acknowledgements 11 Contents 13 Frequently Used Abbreviations 17 List of Figures 19 List of Tables 21 1: Financial Crisis and Banking Crisis in Japan: 1997–2003 23 1.1 Introduction 23 1.2 Outline of the Banking Structure in Japan 24 1.3 The Bubble Economy and Its Collapse 26 1.3.1 The Three Causes of the Bubble Economy 26 1.3.2 Bank Behaviour 30 1.3.3 Collapse of the Bubble Economy 34 1.4 Financial Crisis 35 1.4.1 The Shinkumi Crisis 35 1.4.2 The Jusen Crisis 38 1.4.3 Successive Collapses During Bloody November 40 1.4.4 Collapse of the Two Long-Term Credit Banks 42 1.5 Restructuring of City Banks 44 1.5.1 Injections of Public Funds Three Times 44 1.5.2 The Shinsei Shock 45 1.5.3 Births of Megabank Groups 46 1.5.4 The Zenecon Crisis 46 1.5.5 The Resona Shock 47 1.5.6 The UFJ Crisis 49 1.6 Conclusion 50 References 54 2: Change in Banking Supervision Policy and Their Effects on Bank Behaviour: 2002–05 55 2.1 Introduction 55 2.2 Change of Banking Supervision Policy 55 2.2.1 Change of Banking Supervision Authority 55 2.2.2 The Financial Big Bang in Japan 58 2.2.3 Programme for Financial Revival 60 2.3 Bank Behaviour and Loss of Autonomy 63 2.3.1 Dissolution of the Mutual Shareholding System 63 2.3.2 Disposal of NPLs 64 2.3.3 Collection of NPLs 67 2.3.4 Revitalization of Failed Firms 68 2.3.5 The Second of the Basel Accords 69 2.3.6 Change of Bank Behaviour and Loss of Autonomy 70 2.4 Structural Reforms in Economic and Social Systems in Japan 75 2.4.1 Excessive Surpluses in the Three Economic Elements 75 2.4.2 Backbone Design for Economic System Reforms 76 2.4.3 Acts of Insolvency and the Accounting System 79 2.4.4 Employment System 81 2.5 Conclusion 84 2.5.1 [Column] The Issue of the 30 Failed Firms 86 2.5.2 [Column] The Saiken Hoki Method 86 References 88 3: The Lehman Shock and Its Influence on Banking Supervision Policy: 2008–13 89 3.1 Introduction 89 3.2 Deflation in the 2000s 90 3.2.1 Definition of Deflation 90 3.2.2 Trend of Deflation 90 Trend of CPI and GDP Deflator 90 Price Changes by Product 91 3.2.3 Dispute of Aggregated Prices 93 3.2.4 Wage Deflation 94 Trend of Wages and Salaries 94 Background of Wage Deflation 96 3.3 Monetary Policy of the BOJ 98 3.3.1 Monetary Policy After the Collapse of the Bubble Economy 98 Pre-financial Crisis Period 98 Banking Crisis Period 99 The Longest Economic Expansion Period 101 3.3.2 Effects of the BOJ Policy 105 Effects of the Zero Interest Rate Policy 105 Effects of Quantitative Monetary Policy 107 3.4 The Lehman Shock and the Great East Japan Earthquake 110 3.4.1 The Lehman Shock 110 3.4.2 The Great East Japan Earthquake 116 3.5 Portfolio of the Banks 118 3.5.1 Small Rebalance of an Asset Portfolio 118 3.5.2 Decline of Interest Margin 120 3.6 Conclusion 125 References 126 4: The Launch of Abenomics and Its Effects on the Banking Business 128 4.1 Introduction 128 4.2 Launch of Abenomics 129 4.2.1 Economic Situation of Pre-Abenomics 129 4.2.2 Three Arrows 131 Monetary Policy 131 Fiscal Policy 133 Growth Policy 135 4.2.3 Theoretical Background 137 4.2.4 Arguments 139 4.3 Effects of the New Monetary Policy 140 4.3.1 Financial Markets 140 4.3.2 The Second Bazooka 142 4.3.3 Banking Business 144 Portfolio Rebalance 144 Decline of Yields 145 Overseas Lending 147 4.4 Three-Year Results of Abenomics 150 4.4.1 Macro Economy 150 CPI 150 Employment 151 Corporate Profit 152 Tax Revenue 153 4.4.2 Defects of Abenomics 154 Labour Share 154 Divergence Among Firms 155 Growth Strategy 155 New Three Arrows 156 4.4.3 QQE with a Negative Interest Rate 156 4.5 Conclusion 159 4.5.1 [Column] Political Background of Prime Minister Abe 160 References 161 5: The Future of Banking Management in Japan 162 5.1 Introduction 162 5.2 Funds Flow and Its Future 163 5.2.1 Funds Flow 163 5.2.2 Outstanding Balance of Financial Assets 165 5.3 Structural Issues of the Japanese Economy 167 5.3.1 Population Decline 167 5.3.2 Deterioration of the Local and Peripheral Economies 170 5.4 Development of the Financial Industry 173 5.4.1 Capital Markets 173 5.4.2 Shadow Banking System 175 5.4.3 Retail Financial Business 176 5.4.4 Crowdfunding 178 5.5 The Japanese Banking Business of the Future 180 5.5.1 Banking Business in the Future 180 5.5.2 Megabanks 181 Domestic Business 181 Overseas Business 184 5.5.3 Regional Banks 188 5.5.4 Small Financial Institutions 191 5.6 Conclusion 192 References 196 6: Conclusion 197 Index 201 Front Matter....Pages i-xxii Financial Crisis and Banking Crisis in Japan: 1997–2003....Pages 1-32 Change in Banking Supervision Policy and Their Effects on Bank Behaviour: 2002–05....Pages 33-66 The Lehman Shock and Its Influence on Banking Supervision Policy: 2008–13....Pages 67-105 The Launch of Abenomics and Its Effects on the Banking Business....Pages 107-140 The Future of Banking Management in Japan....Pages 141-175 Conclusion....Pages 177-180 Back Matter....Pages 181-184