Who declares the demise of the Japanese main banking system?

Takahashi, Takuma
December 2002
Journal of International Banking Regulation;Dec2002, Vol. 4 Issue 2, p123
Academic Journal
In order to send a stronger signal on banking reform, Japan's Prime Minister Junichiro Koizumi replaced the Minister for the Financial Services Agency (FSA) in September, 2002. The FSA in turn postponed the introduction of the pay-off system for another two years. The solution for troubled financial markets in Japan is not simply the 'clean-up' of a few banks, but a fundamental change in the core philosophy that is used to allocate money across the economy. In other words, the Japanese main banking system is the pillar of the 'year 1955 financial system' that formed around 1955 as a mixture of the wartime economic system and the market economy system. As it became taken for granted by all parties involved, it has survived any crisis easily.However,the new Minister for the FSA has been blamed for not showing a design after his destruction process. The author argues that the Mycal incident in 2001 rather than the new cabinet member seems to have finally triggered a fundamental change in the main banking system, as its inability to revitalise the ailing business corporation was revealed. A bold challenge (though only for Japanese banks) was the announcement by Sumitomo- Mitsui Bank in April 2002 that it would charge a maximum 400 basis points spread on its loans,according to the credit rating. As a result,corporations have had to accept a rise in borrowing rates of as much as 3--4 percent. The bank stipulated that it will not extend loans to companies in danger. Other major banks have followed suit. The author speculates that despite the enfeebled Koizumi cabinet these measures should shrink the bank loans, which have over-extended, and normalise the capital markets in Japan to an extent that will change the year 1955 financial system.


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