(zaiteku—literally, 'financial engineering'), as well as to individuals who were willing to provide land as collateral. The bubble demonstrated that the Japanese, like others, are subject to collective speculative manias. It also painfully demonstrated ex post the weakened monitoring capacity of banks in the newly emergent market environment. But we do not think that this implies that the Japanese experience in the heyday of the main bank system is irrelevant for developing and transforming economies which still face the need for the establishment of sound financial systems facilitating economic development.
Nonetheless, the bad loan consequences of the bursting of the speculative bubble will probably result in a relatively weaker banking system in Japan unless there is further deregulation, particularly permitting banks to engage in bond underwriting and related services more liberally, and hence to evolve into universal banking-type institutions. At this moment, the willingness and capability of main banks to rescue companies is under test, and they may well become more discriminating in client selection in the future. The system may be becoming more diversified in the direction of better firms having weaker core bank relationships with multiple banks. In spite of all these factors, however, the Japanese system seems unlikely to shift to the Anglo-American type arms-length banking system in the near future. One reason is the peripheral nature of the equity market, which, partly due to stable shareholding practices, lacks effective monitoring functions to replace those performed by banks. This in turn reflects structural features of Japanese firm organization, notably the operation of a highly internalized employment system, predicated on long-term employment. The main bank system has aspects that cannot be dismissed simply as late development phenomena (see Chapter 4 by Aoki). Main bank relationships will undoubtedly evolve, but the main bank will continue to be an important actor in the Japanese financial system, particularly if it is able to adapt itself to the new market environment.
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Aoki, Masahiko. 1984. The Cooperative Game Theory of the Firm. Oxford: Oxford University Press.
——. 1988. Information, Incentives, and Bargaining in the Japanese Economy. Cambridge: Cambridge University Press.
Aoki, Masahiko and Paul Sheard. 1992. 'The Main Bank System and Corporate Governance Structure in Japan.'
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