THE JAPANESE BANKING INDUSTRY

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 firesale prices" (Rohwer, 1998, 22). Most theorists and analysts point out that the baddebt 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 London pointed out that Japan's economy has

stalled and bankruptcies, already at record levels, are increasing. Then there are loans by Japanese banks to companies elsewhere in Asiaa whopping $276 billion, according to the Bank for International Settlements, although the true figure is probably much higher. 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. It is perhaps no coincidence that Bank of TokyoMitsubishi and Sanwa Bank have the largest Asian loan books ("Japan's Battered Banks..." 1998, 12).

Japanese Culture and Its Relationship to Banking

. . .
t share-holdings, common trademarks, commodity transactions, and bank loans between themselves. Belonging to a keiretsu has influenced the flow of transactions between member firms and created a thick and complex skein of relations matched in no other industrial country" (Dunning, 1995). Characteristics of Japanese Banking Compared to Western banking, the Japanese regulatory structure is less restrictive, allowing for interest rate liberalization, and the Ministery of Finance still dictates policies that support these historical arrangements through administrative guidance instead of through written rules and regulations. For example, Japan's deposit insurance offers depositors far less protection than the U.S. system, relying on other prudential mechanisms to keep the system sound. On another aspect of reform, the Ministry of Finance has been considering recommending modification of Article 65 of the Japanese Constitution (Japan's version of the Glass Steagall banking Act), which separates banking from commerce. However, this issue has been under consideration for the last five years and the ministry has not been able to resolve it. Constitutional amendment is difficult in Japan. Regulatory structure of the Japanese fin
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Approximate Word count = 1962
Approximate Pages = 8 (250 words per page)

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