Akiyoshi Horiuchi

A Review of Japan's Bank Crisis from the Governance Perspective

Why has Japan suffered from the NPL problem for such a long time? We will answer to this question from a governance perspective that emphasizes important influence of the governance structure on bank management. In our opinion, Japan failed to motivate banks to play the role of monitoring essential to the bank-centered financial system. We will stress that there existed a vacuum of governance in the bank management in the sense that bank managers were not effectively disciplined as to attain sufficient prudence in there management. The vacuum of governance accounts for the fragility of the banking sector and, more importantly, the prolongation of the NPL problem in Japan.

What role has the “Main Bank” played in Japan?☆

Abstract This paper investigates whether there has been risk-sharing between banks and borrowing companies through the main bank relationship in Japan. First, we evaluate the importance of risk-sharing by statistically examining the factors behind changes in main bank relationships. If the main bank relationship is based upon a mechanism of risk-sharing, changes in the relationship ought to be systematically related to changes in the risk that borrowing companies face. Second, we evaluate the importance of the main bank relationship as a means of risk-sharing by comparing the correlation between financial expenses and the operating profits of specific companies with the degree of their dependence on main banks. The first investigation indicates that growth by a company, the presence in its financial grouping of a large bank, and a history of past changes in its main bank, to differing extents all exert significant influence on changes in the main bank relationship. The main bank relationship in Japan does indeed have some empirical content. However, neither investigation supports the hypothesis of risk-sharing via the main bank relationship. J. Japan. Int. Econ., June 1988, 2(2), pp. 159180. Faculty of Economics, University of Tokyo, Bunkyo-ku, Tokyo 113,

Did amakudari undermine the effectiveness of regulator monitoring in Japan

The principal–agent problem between the regulator, regulated banks, and taxpayers is critical to the viability of the financial system’s safety net. There exists the danger that the regulator will collude with regulated banks to pursue their benefits at the expense of taxpayers, thereby reducing effectiveness of financial supervision. This paper proposes that the human relationship prevailing between the regulatory authorities and private banks referred to as “amakudari” is a form of collusion between the regulator and banks that endangers the safety net mechanism in Japan. Statistical analysis of data on regional banks shows that those banks accepting post-retirement officials from the Ministry of Finance have reduced capital adequacy levels and increased non-performing loans. Thus, the statistical result supports the hypothesis proposed in this paper.

A Vacuum of Governance in the Japanese Bank Management

This paper overviews the bank crisis Japan has faced since the early 1990s. Undeniably, the current bank crisis is the aftermath of the financial over-expansion that occurred in the late 1980s. However, this paper focuses on the issues related to managerial governance in the banking sector. We propose a hypothesis that there has existed a vacuum of governance in the Japanese bank management in the sense that bank managers have enjoyed wide latitude. This hypothesis of the governance vacuum will explain why the bank crisis has been so serious and so protracted.

Informational properties of the Japanese financial system

Abstract This paper investigates how the agency problems have been solved in the Japanese financial system. After discussing two ways of coping with informational imperfection in financial markets, i.e., the market and the hierarchy solution, we focus on the workings of the main bank relationship that can be regarded as one of the hierarchy solutions to evade the informational imperfection. The main bank relationship has been important because of its functions as a ‘delegated monitor’. However, the inflexible nature of the hierarchy solution has led to the underdevelopment of capital markets, which seems a weak point of the Japanese economy.

The Big Bang: Idea and Reality

The Japanese financial system has been obsessed by the nonperforming loan problem since the beginning of the 1990s. The government failed to deal with the problem quickly, and thereby made the situation progressively worse. Ultimately, it was necessary to deal with the problem as an emergency and inject public funds into banks as additional capital in order to regain stability in the Japanese financial system. It is widely believed that regaining financial stability is a prerequisite for recovery of the Japanese economy (Horiuchi 1999a; Hoshi and Kashyap 1999).