Such an extensive reform within a few years time is certainly unprecedented in any country. Based on the results of the Financial System Reforms implemented so far, and with a view to establishing a legal system that applies to financial institutions across the board rather than by type of business category of financial institutions, we now intend to submit the following bills to the Diet. Moreover, the Financial System Council is now studying reorganizing stock exchanges and financial futures exchanges into joint-stock companies.
In order to promote the Financial System Reform, it is essential to ensure the stability of the financial system. To this end, the Financial Function Early Strengthening Law and the Financial Revitalization Law were enforced in October , providing credit guarantees by the government of up to 25 trillion yen and 18 trillion yen respectively, in addition to the 17 trillion yen already appropriated for the full protection of deposits.
This was the story of corporate bond deregulation in the s; as the bond market was gradually decontrolled and allowed to expand, the primary purchasers of corporate bonds were banks. In the end, little changed in the real flow of funds or in the way institutions handled information and made lending decisions. Sometimes the most important element of any government policy initiative is what is not included. An honest accounting of the Japanese banking situation would probably reveal that numerous insolvent banks remain in business, while many others have capital well below international standards.
Failure to confront this huge problem undermines the Big Bang, since altering a system filled with very weak institutions could be too traumatic for officials and politicians to push with any vigor. To be sure, it took U. But when regulators did take action, beginning in the late s, they did so forthrightly, shutting down insolvent banks and thrifts and paying off their depositors or, in other cases, providing some government funds to induce healthy institutions to take over the insolvent ones.
Meanwhile, regulators forced weakly capitalized banks either to shrink or to obtain new capital. Japan faces several hurdles to adopting the U. On the political front, elected Japanese leaders and officials in the Ministry of Finance fear popular opposition to using public funds even to put insolvent institutions out of their misery.
The bold action in November protecting deposits at Hokkaido Takushoku Bank, one of Japan s largest, is an encouraging sign.
The critical question now is whether the Japanese authorities will mount a larger bank cleanup program. A key impediment to doing so is that relatively few healthy Japanese banks are capable of taking over the many other weaker ones. In principle, this drawback could be overcome if Japan were to court foreign banks and financial institutions to bid for weak and insolvent Japanese banks.
But foreign interest is limited by opaque Japanese accounting practices. Although no single change is likely, by itself, to lead to a cleanup of the Japanese banking situation, the government has no other choice except eventually to use public funds to solve the problem. As long as the banks remain weak, the overall Japanese economy will struggle to mount a healthy recovery.
The Big Bang reforms desperately need a healthy economy to succeed. Japanese policymakers can learn at least one negative lesson from the United States. In the s, the United States eased asset investment restrictions for thrift institutions, most of which were insolvent at the time yet continued to operate because of deposit insurance. With incentives to gamble for resurrection, many thrifts abused the wider investment authority they were given and wasted billions in busted real estate deals.
Facing a similar situation now with its banks, therefore, Japanese policymakers would be prudent to limit the ability of weak banks to affiliate with or be owned by nonbanking enterprises — which could be used to run excessive risks in the hope that the payoffs from the gambles would be used to help their weak banking sisters.
To prevent such an outcome, the authorities should insist that only well capitalized banks — measured by honest accounting rules — be permitted to take advantage of the broader powers allowed under the new financial holding company legislation. Even with the caveats expressed above, the proposed changes are a positive development. Since , Japan has introduced extensive reforms in the accounting system and the Commercial Code, what is known as the "accounting big bang". Only six or seven years ago, the Japanese accounting standards deferred in a great manner from those of the United States or the International Accounting Standards now the International Financial Reporting Standards.
Although the worldwide tendency was towards harmonization, it was sustained that Japan should continue maintaining its own system and that it was not necessary to change it. Consequently, the reforms made in these several years had a great influence in Japanese corporate behaviour.
In order to see the behaviour of the Japanese corporations, we had performed three extensive researches.
As a result, we had discovered that corporations following the Japanese style management could be clearly divided into two groups: the internationally oriented corporations, and the domestic oriented corporations. Wrong email address. You're going to remove this assignment. Are you sure? Yes No. Additional information Publication languages: English. Data set: Elsevier. Publisher Elsevier Science. Fields of science No field of science has been suggested yet. You have to log in to notify your friend by e-mail Login or register account.
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