The Japanese Economy Status

These higher and somewhat non matched earning in the Nipponese market then enabled Nipponese banks to contend in foreign markets. The downturn in the Japanese economy, however, decreased the earnings of the Japanese banks within the Japanese market to an end that those earnings no longer were able to subsidize inefficient competition by the banks in many foreign markets. greater efficiencies through the application of technology and the development of new service will be required to enable Japanese banks to make do effectively in foreign markets.

Another issue bestow to operational inefficiency at Japan's largest banks was keiretsu system which included so-called " harmonium banks." The clustering of Japanese companies around large banks permits the keiretsu corporate groups to pay more than two-thirds of their investments from within the keiretsu (Tseo & Ramos, 1995, p. 25). This practice frees Japanese firms from the short-term obligations of stocks. As a consequence, both products and markets may be permitted to develop soft over years, as opposed to the short-term payoffs demanded by brotherhood American corporate managers.

In-house " harmonium banks" enabled the keiretsu to overcome the weakness of the Japanese stock exchanges and channel resources to entrepreneurial ventures (Lynn & Rao, 1995, p. 58). The keiretsu also established indemnification and trust companies to mobilize financial resources for their

Frankel, A. B., & Morgan, P. B. (1992, August). Deregulation and competition in Japanese banking. Federal give up Bulletin, 78, 579-593.

In the mid-1980s, reforms were introduced that gave Japanese banks increased access to international markets (Frankel & Morgan, 1992, p. 580). preliminary to this liberalization, the Bank of Japan provided all funds required by Japanese commercial banks.

In return, however, the commercial banks were required to stick by to domestic lending policies prescribed by the Bank of Japan.

devil provisions of the Foreign Exchange Law of 1980 were important to the integrate of Japanese domestic money markets with international markets (Frankel & Morgan, 1992, p. 581). These provisions of the police force were the authorizations (1) for Japanese banks to borrow and lend foreign currencies freely (both at home and abroad), subject only to financial prudence guidelines, and (2) for Japanese corporate enterprises to finance themselves abroad through borrowing denominated in foreign currency.

Organ banks are also sources of coordination within the keiretsu (Lynn & Rao, 1995, p. 59). The organ banks possess inside information that results in the efficient evaluation of risk, and thus the efficient allocation of capital (Imai, 1992, p. 211). When necessary, bank managers are expected to discipline inefficient group-member firms by holding come out of the closet the threat of calling in the loans or even fetching control of the troubled sub-unit.

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