Informality and Monetary Policy in Japan: The Political Economy of Bank Performance

By Adrian Van Rixtel | Go to book overview

8
Amakudari and the performance
of Japanese banks

To understand everything must mean to know nothing.

Old Buddhist saying


8.1 Introduction

The objective of this chapter is to investigate further quantitatively the three aspects of the explanation of the presence of MoF and BoJ amakudari kanryō on the boards of private banks for the period 1975–1999 as described in chapter 7: patterned equalisation (or 'buying influence'), bureaucratic intervention or ex-post monitoring in the context of prudential policy, and career management.1 These three elements will be formulated as hypotheses that will be tested using econometric techniques. Furthermore, I shall pay attention to certain possible negative effects of amakudari on the performance of Japanese private banks. In this respect, the element of patterned equalisation will be reformulated into a more negative version that departs from the notion that equalisation attempts could possibly lead to collusive practices involving former MoF and BoJ officials and private banks. Thus, the first hypothesis will concentrate on the behaviour of banks in terms of agency costs. This hypothesis is in line with Horiuchi and Shimizu (1998), Hanazaki and Horiuchi (1998) and Yamori (1998), where it is concluded that the mechanism of amakudari has led to 'cosy' relationships between supervisors and banks that most likely have undermined the effectiveness of Japanese prudential policy. The hypothesis can be explained as follows. Banks in trouble bid for the services of well-connected officials from the MoF/BoJ in order to receive support or regulatory forbearance. These retired senior officials have the respect of their former subordinates at the MoF/BoJ and still wield much influence over their actions. Troubled banks are willing to

____________________
1
This chapter draws heavily on joint work with Wolter H.J. Hassink. An abridged version of the chapter is forthcoming in the Journal of the Japanese and International Economies. Helpful comments by two anonymous referees are highly appreciated.

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