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JAPANESE BANKING INDUSTRY.
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Examines role of banks in changing economy, cultural context, keiretsu (banking-business aliances), stability compared to U.S. banks.... More...
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Paper Abstract:
Examines role of banks in changing economy, cultural context, keiretsu (banking-business aliances), stability compared to U.S. banks.
Paper Introduction:
A STUDY OF THE JAPANESE BANKING INDUSTRY
Introduction
Rohwer (1998) paints a disturbing picture of the Japanese Banking Industry. He states that “much has happened in America's S&L crisis in the early 1990s, bad banks need to be shut down or taken over, good banks recapitalized, bad loans written off, and the collateral underlying them (usually real estate) disposed of at fire sale prices” (Rohwer, 1998, 22). Most theorists and analysts point out that the bad debt problem of Japanese banks could amount to upwards of 25% of that country’s GDP, implying that a solution (if available) is “bound to be enormously painful and costly” (Rohwer, 1998, 22).
Also in 1998, the year that the Japanese banking system proposed a plan (of sorts) for bailing out the economy, the Economist in
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peacekeeping forces or development expenses" (Johnson, 1993, 53). And Svarre,S.C. "These orders are not institutionally binding.However, if an institution violates a directive issued by MoF, it may findits activities in unrelated areas negatively affected. (1995, March 22). Companies like Coca-Cola, Microsoft, Disney, Virgin Atlanticand some 2, other major companies are using financial derivatives as astandard part of their value-added accounting process. A STUDY OF THE JAPANESE BANKING INDUSTRY Introduction Rohwer (1998) paints a disturbing picture of the Japanese BankingIndustry. Information, incentives, and bargaining in theJapanese economy, London: Cambridge University Press. (1998, Jan.). Lexington, MA: DC Heath 19-5 . Financial derivatives are financial transactions thatmultinational companies engage in to protect their investments in foreigncountries. Banerji, K. Capitalism and Keiretsu There are strong historical links between banks and industry throughtwo socio-economic constructs known as the "zaibatsu" and "keiretsu," whichcan be defined as grouping and interlinking of great industrial-commercialcombines around a bank. Besides the12 City banks, which are also short-term deposit takers and lenders, thereare 13 regional banks, three long-term credit banks and seven trust banks,providers of long-term credit, plus 3 mutual loan and saving banks,specialists in lending within rural and metropolitan areas. LeBlanc, M. Conclusion The Japanese banking system is far more concentrated than that in theUnited States. The main tenets of Japanese capitalism include:* High level of government/ business integration, both in definingeconomic objectives and in executing policy (Cohen, 1997);* A weak multi-party system that tends to cycle in phases toward "softauthoritarian" systems with one predominant party or charismatic leader;* Pronounced lack of concern for welfare or "safety-net" arrangements;* A single-minded focus on economic success (Adams, Hoshii, 1972, 128-144). . Policy alternatives for reform of theFree Trade Agreement of the Americas. By best estimates, companies and banks around the world are involvedin some 6 trillion dollars (US) worth of financial derivatives (Geer,1997, 52). This is sometimes looked at as the "equilibrium value" at whichthe quantity of dollars demanded (by foreigners interested in doingbusiness in the United States) just equals the quantity of dollars supplied(by US residents who want to do business in other countries. The Bank of Japan still controls interest rates paid on most bankdeposits, even though the allowable interest rates paid on deposits havebeen rising through financial liberalization. Gastle, C.M. Japan's devalued (orunderalued) Yen, on the other hand, makes it practically unbeatable in highvalue-added goods, such as automobiles. It is a group of "inter-related organizations thathave cross-ownership, joint share-holdings, common trademarks, commoditytransactions, and bank loans between themselves. Reisman, G. For instance, anapplication to open a new branch might be delayed or, worse, rejected"(LeBlanc & Svarre, 1998, 12). In the real world, says Johnson, "it is more commonly about a lot ofother things, such as the exchange of economic advantages for politicalfavors, the open reaping of rewards for technological innovation, payoffsto nations where vital resources are at stake. Cohen, B. (1988). Japan is dynamic because its managersdevote themselves to competing with other companies at home and abroad"(Johnson, 1993). The transfer of managementinnovations from Japan. Geer, C.T. 26 23(24). (1998, April 22). The Japanese FinancialSystem, Federal Reserve of New York. 27:1 89. The Bank of Japan controlsdeposit interest rates by setting unusually high minimum transactionamounts for certificates of deposits (CDs) and money market certificates(MMCs)(Reisman, 1996). Law and Policy in InternationalBusiness 3:26 735. Manufacturing innovation: Lessons from theJapanese auto industry. There is much academic discussion of the values of the Japanesekeiretsu and its style of operation for maximum effectiveness. (Gastle, 1995). Richebacher, R. (1997). Forbes Magazine,52 Japan's battered banks: Details, details (1998, Jan. This leads to great government influence over banking. (1995, March 1). TheEconomist, 22. Japan's key restructurings [to ultracapitalism] were: * de facto total separation of management from the wishes of owners and * A shift of the burden of corporate risk to the side of labor byrestricting the ability of workers to move from one company to another,thereby achieving * The autonomy of management. That is, until the 1998 Yen crisis. Belonging to a keiretsuhas influenced the flow of transactions between member firms and created athick and complex skein of relations matched in no other industrialcountry" (Dunning, 1995). It is perhaps no coincidence that Bank of Tokyo- Mitsubishi and Sanwa Bank have the largest Asian loan books ("Japan's Battered Banks..." 1998, 12). The act of using derivatives, however, has caused some analysts tocall them the financing trend of the future, and other analysts to describethem as the precursor to a financial collapse unparalleled in world history(Richenbacher, 1998, 1 ). This dichotomy of attitudes is the result, suggests Johnson, of manyfactors, most predominant of which was a certain blindness on the part ofthe West to acknowledge that Japanese capitalism was indeed different fromthe laissez-faire construct of the West (Aoki, 1988). Johnson, C. Journal of InternationalBusiness Studies. (1995, December 22). However, this issue has been under consideration for the last fiveyears and the ministry has not been able to resolve it. However, the decline of U.S. At the same time, traditional lending still accounts for 8 % to 9 % ofprofits. Dunning, J.H.(1995, Dec. Ohwer, J. The worst is yet to come, Fortune, 14. And Beechler, S. The top five Japanese banks account for 28 percent of totalbanking assets, while the top five U.S. Japanese companies shifting productionto Southeast Asia increasingly use direct financing from markets, often inEurope, instead of loans from Japanese banks. Mitsubishi, Fuji, Mitsui are good examples of thissort of combined banking-business alliances. Links between businessstrategy and human resource management strategy in U.S.-based Japanesesubsidiaries: An empirical investigation. Who needs derivatives? Reappraising the eclectic paradigm inan age of alliance capitalism. Journal of International Business Studies26:4 461. Lillirank,(1995), suggests that most of the basic ideas of Japanesemanagement were originally developed in the United States; "only when theJapanese demonstrated that they can be translated into competitiveadvantages, did a demand for these methods start to materialize, pointingout the benefits of flow-based plant layouts, trust-based suppliernetworks, or industrial keiretsu, inventory management with Just-in-Time(JIT), and employee involvement in continuous improvement through QualityControl Circles" (Lillirank, 1995). Japanese Culture and Its Relationship to Banking Several years ago, researchers began investigating the relationshipbetween Japanese Capitalism and Western Capitalism. (1988). Japan has been a one-party democracyunder the guiding hand of the LDP and MITI. Then there are loans by Japanese banks to companies elsewhere in Asia-a whopping $276 billion, according to the Bank for International Settlements, although the true figure is probably much higher. banks account for only 13 percent. Sloan Management Review 3 29-36. (1972). (1993, Summer). banks inthe global economy due to their financial difficulties accelerated Japanesebanks' rise to the top. system, relying on other prudential mechanisms tokeep the system sound. Organization Studies 16: 6 971. References Adams, T.F.M; Hoshii, I. Dunning (1995) and others (Bird,Beechler, 1995; Cusumano, 1988) confirmwith qualifications that the keiretsu" is safely defined within thefollowing parameters. Cusumano, M.A. Bird, A. 35:4 51(14) Lillirank, P. Also in 1998, the year that the Japanese banking system proposed aplan (of sorts) for bailing out the economy, the Economist in Londonpointed out that Japan's economy has stalled and bankruptcies, already at record levels, are increasing. If there is no change in their attitude, then all the smartbusiness will go to their competitors. Characteristics of Japanese Banking Compared to Western banking, the Japanese regulatory structure is lessrestrictive, allowing for interest rate liberalization, and the Ministeryof Finance still dictates policies that support these historicalarrangements through administrative guidance instead of through writtenrules and regulations. (ed). (1998, July 2 ). Whether or not the Japanese will continue to make their presence knownin the derivatives market, or whether they will pull back in an attempt torestabilize their banking industry, it is apparent that the differencesbetween Western capitalism and Japanese capitalism will continue to remaingreat. On another aspect of reform, the Ministry ofFinance has been considering recommending modification of Article 65 of theJapanese Constitution (Japan's version of the Glass Steagall banking Act),which separates banking from commerce. They act more like an arm of the government's economic-development policy and haven't made the transition to being commercialenterprises. While the United States experienced a record number of bank failures,and increasing trade and Federal budget deficits, Japan was the onlyindustrial country that had not experienced any bank failures in the lastfour decades. (1996) Capitalism New York: Jameson Books. Thisstability is a major factor in the rise of Japan's banks to the top of thelist of the world's richest banks. and the creation ofsurpluses that can be used to pay for such things as scientific research ,U.N. Theclassical market concept of "supply and demand" determines the exchangerate, in this case, the "supply" of the dollar versus the "demand" for thedollar. He states that "much has happened in America's S&L crisis in theearly 199 s, bad banks need to be shut down or taken over, good banksrecapitalized, bad loans written off, and the collateral underlying them(usually real estate) disposed of at fire-sale prices" (Rohwer, 1998, 22).Most theorists and analysts point out that the bad-debt problem of Japanesebanks could amount to upwards of 25% of that country's GDP, implying that asolution (if available) is "bound to be enormously painful and costly"(Rohwer, 1998, 22). (1996, March 22). Bankers have already had to roll over many of these loans, and, thanks to currency crises and economic collapses, a large proportion will probably end up unrecoverable. For example, Japan's deposit insurance offers depositors far lessprotection than the U.S. California Management Review. To Dunning,(1995), the kereitsu model should be followed by companieswishing to remain competitive in the global economy since it answers theneeds of consumers by focusing on the upgrading of core competencies offirms, and on the way these firms are organized as a means of improvingtheir global competitive advantages (Dunning, 1995). 17). Banks, particularly Japanese banks, are responding to the variouschallenges by recognizing that "lending" is a dwindling part of theirbusiness and by seeking new activities such as issuing and trading, whichpromise long-term growth. These banks cannot be involved in insurance, or real estate, and banksare limited to 5 percent ownership in industrial and commercial firms.Banking policies come from the Ministry of Finance based on the banking lawwhich relies on oral or, occasionally, formal written directives toindividual institutions. That may be happening already. Aoki, M. Johnson (1993) pointedout that the differences between the two types of Capitalism are profoundand point to changing and evolving theories of economics. Comparative Capitalism: The Japanesedifference. (1997, April 21). Banerji and Sambharya (1996), explained theunderpinnings of the keiretsu quite well, noting that the organization hasbeen a key feature of the industrial structure in Japan. Regulatory structure of the Japanesefinancial system facilitates financial stability and economic growth. After the financial shock, the economicshock, The Richebacher Letter, 9-11. 22). . The monolithic capitalism of Asia is relatively unencumbered bypolitics or ideology, unconcerned with what the West calls "civilliberties," or individual rights. A financial history of the New Japan, Palo Alto, CA: Kodansha International Limited. Vertical keiretsuand international market entry: The case of the Japanese automobileancillary industry, Journal of International Business Studies. Pacific Partnership: United States-JapanTrade. Domestic Institutions and Policy Making International banking in Japan today shows great currency dislocationcaused by both currency exchange downgrades and currency volatility. And Sambharya, R.B. In general, there are two kinds: vertical (comprising suppliers,producers, and retailers), and horizontal (comprising firms in differentindustries). Constitutionalamendment is difficult in Japan.
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