The commercial banking and financial sectors of Japan

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 rang

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be required to end entirely by 2007. Market share caps for individual banks are 1.5 percent throughout the transition period. Before 2000, capital size for individual banks will be allowed to increase through internally generated growth but not through acquisition. During the transition period, American and Canadian banks will be allowed to acquire domestic Mexican banks only up to the 1.5 percent individual market share limit. After 2000, however, American and Canadian banks may make acquisitions up to four-percent of total market share. In the post-transition period, American and Canadian banks will be allowed to expand beyond this ceiling only through internally generated growth, including capital injections from a parent institution (Katter, 1992). Market share caps for individual banks in Mexico are 1.5 percent throughout the transition period. Beginning in 2001, however, American and Canadian banks may make acquisitions up to four-percent of total market share. In the post-transition period, American and Canadian banks will be allowed to expand beyond this ceiling only through internally generated growth, including capital injections from a parent institution (Katter, 1992). One of the first financial reforms in Jap
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Approximate Pages = 7 (250 words per page)

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