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11 Cards in this Set
- Front
- Back
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Japanese Financial System 1950s-1970s
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1. Securities and Exchange Act 1948
2. Foreign Exchange and Foreign Trade Control Law 1949 3. The Interest Rate Law 1949 4. Fund allocation 5. Cross shareholdings 6. Keiretsu |
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The Securities and Exchange Act 1948
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Separation of commercial and investment banks and specialized banks by business categories
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Foreign Exchange and Foreign Trade Control Law 1949
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Ministry of International Trade and Investment (MITI) allocate foeign reserves for imports and allot export quots to industries and individual firms
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Fund allocation
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1. a loan rationing system to ensure scarce funds flow to the designated growth sectors
2. aggressive young companies had to deposit their loans in the same banks they borrowed money 3. banks had no interest in consumer loans or mortgage business |
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Interest Rate Law 1949
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Ministry of Finance set maximum ceiling of interest rates
Bank of Japan could not raise the official discount rate by more than one percentage point at a time exchange rate set at 1=360 |
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Cross shareholdings
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bankers were a major source of inance and shareholder (they could own up to 10% of a company)
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Keiretsu
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a horizontal cross share holding of corporate groupings plus a vertical relation between one dominant manufacturer and its long term suppliers
Each has a main bank who owned a large portion of the firm |
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Monitoring and regulation
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MOF- the final guarantor
overborrowing by firms and over loan by banks bank MOF relationships: the Old Boys system |
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Deregulation and liberalization in 1980s
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1. oil shock and nixon shock in early '70s
2. structural shift from heavy polluting and enery intensive industries to light smart and capital intensive industries 3. high inflation rate in '73, '74 led to the growth of bond and equity market 5. the plaza accord- sharp appreciation of yen 6. open the door from cross border finance after uruguay round and participated in euromarket mikkei 225 increased 5 times from 1980 to 1989 |
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the burst of the bubble
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1. deregulation caused large companies to leave their banks for the stock and bond markets
2. bad loans and systematic frauds led to a wave of bank defaults in 95-97 3. poor corporate governance and disclosure rules -keiretsu system fends off hostile takeovers -yakuza mafia began to play a role in corporate governance since 60s - lack of requirement of consolidated balance sheets |
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problems for japan's banking system
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1. bad loans
2. declining demand of bank loan: the size of banking sector has to shrink by 25% 3. the limited impact of deregulation in japan's financial sector, especially for cross border M&As. |
