The Japanese Main Bank System: Its Relevance for Developing and Transforming Economies

By Masahiko Aoki; Hugh Patrick | Go to book overview

Introduction

The world is in a period of rapid economic change—in structure, behaviour, policies, and institutions. These transformations are perhaps nowhere more profound than in the systems of national and international finance. The forces at work embody an evolutionary process in many countries, overlaid with new policy approaches to new and enduring issues, as well as discontinuously transformational forces, where planned socialist economies are embarked on the transition to market economies.

The motivations of this book, and the collaborative project sponsored by the World Bank on which it is based, are two-fold. One is from the perspective of analysts and policy-makers concerned with the development of efficient and effective financial systems in various developing market economies and transforming socialist economies. The architecture of a country's financial system depends on its own heritage, existing institutions, goals, and policies. Yet no system develops in a vacuum, nor should it. Policy-makers, institution-builders, and analysts can learn from the experience of other countries; after all, most of the problems of financial institution-building and financial reform are generic and the successes and failures of others provide important lessons. The Japanese experience is particularly relevant but not always well understood.

Accordingly, this is the second purpose of this book: to describe, analyse, and evaluate the Japanese main bank system, and to examine its relevance as a model for developing market economies and transforming socialist economies. Banks have played a dominant role in post-war Japan, especially in the era of exceptionally rapid growth from the mid-1950s to the mid-1970s when the business need for external financing of its burgeoning investment was particularly strong. Large Japanese banks developed particularly close and distinctive relationships with their large industrial clients, and with each other, which substantially reduced the cost and increased the quality of monitoring and of rescue of firms in distress.

This main bank relationship was initially a practitioner's term describing a set of arrangements that had developed without an explicitly distinctive legal or regulatory basis. It is appropriately analysed as an especially intensive manifestation of relationship banking. The term 'Japanese main bank system' as used in this book refers to a more or less informal set of regular practices, institutional arrangements, and behaviour that constitute a system of corporate finance and governance, especially for large industrial firms typically listed on the stock exchange, but applying in principle and practice in less complete ways to medium and small firms as well. These relationships were not exclusive, in that

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