Japan's Financial Slump: Collapse of the Monitoring System under Institutional and Transition Failures (Palgrave Macmillan Studies in Banking and Financial Institutions)

This book evaluates the salient features of Japanese relation-based banking, particularly in the post war period, and Anglo-American mode of banking to explain the nature and extent of transition failure that caused prolonged financial and economic slump in Japan. Cover......Page 0 Contents......Page 8 List of Tables......Page 10 List of Figures......Page 12 Preface......Page 13 Acknowledgements......Page 15 1.1 Fundamental questions about Japan's financial monitoring system......Page 18 1.2 Economic realities......Page 20 1.3 Analytical framework......Page 24 1.4 Summary of conclusions and contributions......Page 25 1.5 Chapter outline......Page 31 2.1 Introduction......Page 33 2.2 Theories related to monitoring activities: Screening and monitoring activities by lenders and investors......Page 35 2.3 Theories related to monitoring activities: Supervising and monitoring activities of regulatory authorities......Page 48 2.4 Theories of institutional changes......Page 60 2.5 Conclusions......Page 64 3.1 Introduction......Page 66 3.2 The Anglo-American financial system......Page 67 3.3 Japanese 'main banks' as intermediaries and monitors......Page 73 3.4 Intangible and informal institutional features of the 'convoy' monitoring system......Page 77 4.1 Introduction......Page 94 4.2 Changes in economic environment affecting the Japanese traditional monitoring system......Page 96 4.3 Limitation of the Anglo-American methods of screening and monitoring......Page 113 4.4 Changes in the financial structures through the 1990s: Comparative financial structures of Japan and the US......Page 123 4.5 Concluding comments......Page 132 5.1 Introduction......Page 135 5.2 Changes in the LTCB's profitability......Page 136 5.3 Responses to the collapse of the financial bubble......Page 145 5.4 Changes in the LTCB's financial position......Page 151 5.5 Conclusion......Page 157 6.1 Introduction......Page 159 6.2 A survey of the process from the collapse of the financial bubble to the LTCB's bankruptcy......Page 160 6.3 Characteristics of Japan's prolonged financial slump......Page 172 6.4 Credit crunch seen as a result of herd behaviour in lending......Page 178 6.5 ShinGinko Tokyo: Another case study......Page 182 6.6 Concluding comments......Page 187 7.1 Introduction......Page 191 7.2 Costs for abandoning the traditional mode – the transition cost......Page 194 7.3 Intensified 'audience' effects......Page 202 7.4 Actions by the Japanese banks after the crisis......Page 207 7.5 Conclusions......Page 210 8.1 Summarized conclusions......Page 212 8.2 Lessons from Japan's financial stagnation......Page 216 Notes......Page 220 Bibliography......Page 225 Index......Page 232 This book€critically evaluates the salient features of Japanese relation-based banking and the Anglo-American mode of banking to explain the nature and extent of transition failure that caused a€prolonged financial and economic slump in Japan. Taking an institutional perspective, it shows how the new institutional settings made the credit monitoring and supervision mechanisms ineffective letting the financial system become fragile due to both country specific characteristics and inherent limitations in the new institutional settings. In doing so, the book blends various theoretical perspectives and sheds light on Japan's informal institutions as well. The discussions are rich in analytical interpretation and empirical evidence, portraying a comprehensive picture of the traditional as well as the contemporary financial system in Japan. It concludes with a set of lessons to be learned from Japan's experience that will help future financial reforms elsewhere as well as in Japan Introduction and Summary Theoretical Framework and Basic Analysis of Monitoring Activities Characteristics of the 'Traditional' Japanese and Anglo-American Financial Systems Economic Environmental Changes and Institutional Changes The LTCB Collapse: A Case Study Intensified Uncertainty: The Political and Economic Reality of the 1997-98 Financial Crisis and Prolonged Financial Stagnation in Japan Transition Failure Conclusions Bibliography