Although the term 'main bank' was first used in the post-war period, the particular pattern of corporate control which utilizes the monitoring activity of a bank in a loan syndication is an extension of the long-term process of interaction among changes in industrial structure, the evolution of the financial system, changing patterns of business financing, and some historical accidents.
A fascinating phenomenon in this process is the spontaneous and endogenous emergence of loan syndications during 1939-41. This chapter investigates the reasons behind this and the relationship of loan syndications to the post-war main bank system. The first section traces the evolution of the relationship among shareholders, managers and banks from the late nineteenth century; it then seeks to clarify the nature of the corporate monitoring system that comprised the background for the emergence of loan syndication in the war-time period, and eventually gave rise to the post-war main bank system. The second section presents a detailed analysis of the 130 loan syndications existing around 1939, and discusses the reasons for their emergence. The process of institutional transformation that led to the Designated Financial Institution System for Munitions Company Financing Act (Gunji Yushi Shiteikinyukikan Seido) is also examined. The rise of the post-war main bank system is considered in the third section.
Two factors are identified in this paper as the basic elements which give incentives for banks to organize loan syndications and play the role of main banks; the rise of large and unfamiliar financing needs that compel banks to resort to loan diversification by organizing syndications, and the increasing degree of autonomy of corporate managers which necessitates monitoring by banks, and a minimization of monitoring costs by means of the main bank system. It is shown that in the war-time economy, where a drastic change in industrial structure aimed at increasing production of heavy and chemical industries was carried out, the first factor was