The commercial banking and financial sectors of Japan and Mexico are compared. The commercial banking and financial sectors in both countries are privately (as opposed to governmentally) owned; however, government in each country exercises high levels of control over the commercial banking and financial sectors through regulatory action.
Deregulation in the Japanese financial system was initiated in the late-1970s. The process of financial liberalization in Japan has been slow and deliberate over the past 23 years. A major focus of the deregulation policy has been to improve the efficiency of Japanese corporate finance. The policy developments stemmed largely from pressures external to the Japanese domestic banking sector itself, such as the substantial increase in government debt as a result of changes in the flow of funds in Japan after the OPEC (Organization of Petroleum Exporting Countries) oil shocks, increased competition in international financial markets, and a new emphasis on bank capital management (Frankel & Morgan, 1992).
For more than 30 years following the end of the Second World War, the Japanese financial system was highly regulated. Japanese monetary authorities administratively determined all interest rates, including those on bank deposits and loans as well as coupon rates on government bonds and bank debentures. The different types of banking firms and other financial service firms were legally and administratively restricted to a specified range of activities and capital markets were required to operate under guidelines that included strict collateral requirements for the issuance of corporate bonds. Few capital generation alternatives to bank financing existed for corporate enterprises in Japan during this period (Frankel & Morgan, 1992).
The clustering of Japanese companies around large banks permits the keiretsu corporate groups to finance more than two-thirds of their investments from within ...