The Japanese main bank system

de Masahiko Aoki, Hugh T. Patrick

This definitive description and analysis of the Japanese main bank system describes a form of relationship banking of significant theoretical and policy interest. As well as being important in its own right, the system also has relevance for developing market economies and transforming socialist economies; the extent of this relevance is another aspect of this thorough empirical and theoretical analysis based on both Japanese and non-Japanese expertise. The basic characteristics of the main bank system are examined here - its roots, development, and role in the heyday of Japan's post-war rapid growth - and its performance, strengths, and weaknesses are observed. The volume goes on to examine how the system has changed and what its appropriate role is as deregulation, liberalization, and internationalization of Japan's financial markets have proceeded over the past two decades and a new issue securities market has blossomed. One conclusion that emerges is that banking-based systems are in most cases the most appropriate for industrial financing until a rather late stage of a country's economic and financial development. The volume aims to identify the conditions under which banks are better able than securities market institutions to evaluate the creditworthiness of borrowers and the viability of new projects, to monitor the ongoing performance of firms, and to rescue or liquidate firms in distress. This is the result of a major Economic Development Institute of the World Bank research project, in cooperation with the Center for Economic Policy at Stanford University and the Center on Japanese Economy and Business at Columbia University, that brought together some of the best scholars in the field, and will be of interest to Japan specialists and those with a general interest in systems of finance.