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Market-Based Banking and the International Financial Crisis$
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Iain Hardie and David Howarth

Print publication date: 2013

Print ISBN-13: 9780199662289

Published to Oxford Scholarship Online: September 2013

DOI: 10.1093/acprof:oso/9780199662289.001.0001

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Market-Based Banking in Japan: From the Avant-Garde to Europe’s Future?

Market-Based Banking in Japan: From the Avant-Garde to Europe’s Future?

(p.218) 10 Market-Based Banking in Japan: From the Avant-Garde to Europe’s Future?
Market-Based Banking and the International Financial Crisis

Ryunoshin Kamikawa

Oxford University Press

This chapter explains why the development of ‘market-based banking’ in Japan remained very low. Because of this, the banking sector of Japan was not damaged significantly by the international financial crisis. At first glance, this can be explained by institutional factors such the strict regulatory framework and the seniority-based remuneration system, which were suitable for the Japanese ‘group-based CME’. In the 1980s, however, Japanese banks and securities companies expanded international operations and launched investment banking in overseas market, avoiding the domestic regulations. After the bubble burst, they cut back international operations rapidly because banks had to focus on dealing with domestic non-performing loans and because securities companies could not afford to participate in the investment banking business with the continuing sluggish Japanese stock prices. This suggests that Japanese financial institutions were constrained less by regulation than the impact of the bubble bursting.

Keywords:   Japan, market-based banking, financial regulation, remuneration system, coordinated market economies, bank, securities company, bubble, investment banking, non-performing loans

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