The Rise and Fall of Abacus Banking in Japan and China phần 4

The Rise of Abacus Banking in Japan 41 securing cooperation in keeping economic objectives going smoothly.’’54 According to Abegglen, this means that the government of Japan stands behind the debt position of major Japanese com-panies, thus both making possible the financing necessary for rapid growth and ensuring that the government through the power of persuasion will play a cen-tral role in determining the nature and the direction of that growth.55 Standing behind the debt of large corporations, the Japanese govern-ment in essence eliminated both traditional and non-traditional banking risks for Japanese banks. But government bureaucrats provided another, perhaps even more effective way of eliminating risks for Japanese banks—tight financial and banking regulation—which, as stated earlier, controlled the behavior of bank managers and made risk management irrelevant altogether. Specifically, financial regulation eliminated risks for banks by limiting competition both across banking and securities industries and within the banking industry. MOF regulation insulates Japanese banks from outside competition while preventing excessive competition among them. The MOF ‘‘extended an unqualified guarantee against failure, promising im-plicitly to use its full armada of powers to keep banks afloat.’’56 Exchange rate controls and restrictions on foreign capital flows limited the entry of foreign banks and securities companies into the Japanese financial markets, eliminating the exchange rate risks. ‘‘Restrictions on inward and outward capital flows prevented savers and borrowers from exploiting foreign capital markets, ensuring that domestic credit restraint was not frustrated by capital inflows under the fixed exchange rate system.’’57 The Securities and Exchange Law of 1948, the Japanese version of the Glass-Steagall Act of 1933, limited competition between traditional bank-ing and securities, except for the purchase of securities for their own account. But financial regulation reached beyond industry entry restric-tions. It strictly defined the types of business and products to be offered by banks, creating city banks, regional banks, and trust banks and over-seeing their day-to-day operations. ‘‘In addition to keeping government control of foreign interest rates and preventing the siren song of market forces from luring capital offshore, a rigid segmentation of financial in-stitutions historically worked to keep Japan’s flow of funds in a constant steady state.’’58 In some cases, the MOF intervened either alone or with other banks to rescue a failing bank. According to Ikeo, 42 The Rise and Fall of Abacus Banking in Japan and China When, in the past, the government recognized a failing bank, it intervened di-rectly and the bank’s operations were restored. If it proved impossible to restore the bank using the bank’s own resources the government appealed to other banks and financial institutions, either for assistance or to absorb the failing institution into their own organization.59 Japan’s tight banking regulation replicates a government cartel, a Gosou-sendan Houshiki, an ‘‘escorted convoy’’ system. MOF ‘‘destroyers’’ protect banks from outsiders and ensure that they are all moved in tan-dem, without crushing one against the other (see Exhibit 2.9). In plain economic terms, government regulation has turned the Japanese banking industry into an oligopoly cartel, where prices are closely controlled. According to Hartcher, Prices—in the form of interest rates—were closely controlled by the ministry in unofficial but binding consultation with the banks. Even after the banks were legally granted full freedom to decide their own interest rates, they continued to set them in concert at agreed levels. The banks also worked intimately with the ministry deciding the level of services they offered customers and even the sal-aries they paid their staff.60 To preserve this type of cartel-like system, MOF ‘‘sanctions are imposed on cartel-breakers by public authorities whose role is to preserve the integrity of the cartel.’’61 One way that the MOF keeps banks moving together is through li-censing (i.e., the requirement that banks must submit any new business proposal to the MOF for approval). The MOF approves applications for the establishment of banks, applications for the reductions in bank cap-ital, the opening and closing of branches, and the merger and liquidation of existing bank operations. Once the MOF approves a new business for a bank, it applies it to all banks. The development of jusen is a case in point. Within a year after their approval, the MOF convinced banks to enter the market for individual homeowner mortgages, intensifying com-petition and eliminating market rents for jusen. In this sense, banks can compete in one way only, through volume (i.e., through growth of the overall industry), making the pieces of the pie larger by making the pie larger (see Exhibit 2.10). Thus, ‘‘a clear distinction between innovating leaders and less innovative followers has been clouded by the Japanese government through a system of administrative licensing and approvals, Exhibit 2.9 Gosou-sendan Houshiki Exhibit 2.10 Bank Assets, Economic Growth, and Gosou-sendan Houshiki The Rise of Abacus Banking in Japan 45 which has generally retarded innovation in the banking industry as a whole.’’62 The MOF further monitors and inspects the day-to-day operations of banks and asks them to restructure their asset and liability positions as deemed appropriate. But once again, the MOF monitors bank operations closely so as to virtually control the behavior of bank managers. For the sake of the ‘‘protection of depositors,’’ for instance, MOF officers are allowed to meddle in banks’ day-to-day operations, in essence running banks, enjoying benefits that could be viewed as outright bribes in other countries. Japan’s Ministry of Finance is much more than an office of government. It is a political, economic, and intellectual force without parallel in the developed world. It enjoys greater concentration of powers, formal, and informal, than any comparable body in any other industrialized democracy. In Japan, there is no institution with more power.63 The minister may also ask banks at any time to submit reports on their business and accounts, and can inspect them. He can order a bank to close or compound its assets in a deposit office, or issue any other orders deemed necessary, should a bank commit illegal acts or the Minister considers that a deterioration in its financial condition necessitates such measures to protect depositors.64 With such vested powers and with little checks and balances by the other two constitutional powers (the legislative and the judiciary), the MOF rather than bank managers decided how credit should be allocated, which has resulted in a rather peculiar relationship between the regu-lators and the regulated. First, the regulated (banks) cooperate with the regulators (the MOF) to conceal non-performing assets, as evidenced in the Daiwa Bank’s New York trading losses. Second, the fear of MOF inspections, for instance, has led Japanese banks to devote substantial resources to enjoying good relations with the MOF (this includes the designation of a bank officer, MOF-tan, to entertain MOF inspectors, so the bank can obtain leads about forthcoming inspections). Third, good relations between banks and the MOF also include the very well-known practice of amakundori, or ‘‘descent from heaven,’’ where banks offer high-paid positions to former MOF officers. In this way, banks end up managed by former MOF executives, imbued in bu-reaucracy and immersed in law and government rather than in econom-ics or management. This means that former MOF bureaucrats make bad ... - tailieumienphi.vn