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Franklin R. Edwards Hugh T. Patrick As the 19908 unfold, we stand
on the threshold of a new age of global financial markets. The
seeminglyinevitable, market-driven dynamicofthe international
integration of banking, securities, and futures markets is bringing
about a profound transformation of financial flows and the
efficiency and effectiveness of the domestic and international
markets serving them. Propelled in the 1980s by a variety
offorces-technological, economic, political, and (de)regulatory-the
implications of international financial market integration are
pervasive. This new era promises to raise a host of new public and
business policy issues as well as opportunities. These include
issues of financial market integrity, international
competitiveness, and regulatory harmony. What will the rules of the
game be? How will prudential concerns for the safety as well as the
efficiency of international financial markets, and their national
counterparts, be met? What are the appropriate new institutional
arrangements? How and to what degree will international financial
mar kets be supervised, harmonized, and regulated, and for what
purposes? Whowill be makingthese decisions
andimplementingthem?Thesearethe issues that confront-and
bedevil-policymakers, practitioners, and scho lars alike. 1 2
INTRODUcnON The Context The 1980s were witness to major
transformations of the international political, economic,
andfinancial environment. Amongthe majordevelop ments was rapidly
increasing international financial market integration across major
nations and across financial product markets. The major sources of
financial change were several, interrelated, and reinforcing."
At the start of the twenty-first century, the Japanese financial
system is undergoing a major transformation. This process is
spurred by a sense of crisis. Dominated by large institutions, the
Japanese banking system has suffered from serious problems with
non-performing loans since the early 1990s, when the Japanese stock
market and urban real estate market both crashed. Delays in
responding to these twin asset bubbles, by both regulatory
authorities and the banks themselves, made matters worse and led to
a banking crisis in late 1997 and early 1998. Not anticipating this
setback, in late 1996 the Japanese government inaugurated its Big
Bang of comprehensive financial deregulation designed to complete
the process of creating `free, fair, and open financial markets'.
Beginning in late 1998 and early 1999 the government finally
embarked on a major rehabilitation of the Japanese banking system,
including making available some Yen 60 trillion (approximately USD
500 billion) of government funds to recapitalize fifteen major
banks, adequately fund the deposit insurance program, and write off
the bad loans of nationalized or bankrupted banks. One result of
this reform process is that the Ministry of Finance (MOF), which
dominated Japanese financial system policy for most of the post-war
period, has been stripped of most of its former regulatory powers.
The purpose of this book is to describe, analyze, and evaluate the
process that is transforming the Japanese financial system. The
chapters address various issues relating to the transition of the
Japanese financial system from a bank-centered and
relationship-based system to a competitive market-based system.
Questions taken up include: Why did Japanese banks get into such
serious trouble? Why has the MOF lost its immense power? How will
the Big Bang's financial deregulation further change the Japanese
financial system, including the huge government financial
institutions and postal savings system? What are some of the
broader implications of this transition? The book is divided into
three parts: Part I considers the origins of Japan's banking
crisis; Part II focuses on five particularly important areas of
major actual and potential changes; Part III addresses the effects
of the Big Bang, including its potential systemic externalities.
Taken together, this book offers an unusually up-to-date,
comprehensive and thorough appraisal and evaluation of the profound
changes occurring in Japan's financial system.
At the start of the twenty-first century, the Japanese financial
system is undergoing a major transformation. This process is
spurred by a sense of crisis. Dominated by large institutions, the
Japanese banking system has suffered from serious problems with
non-performing loans since the early 1990s, when the Japanese stock
market and urban real estate market both crashed. Delays in
responding to these twin asset bubbles, by both regulatory
authorities and the banks themselves, made matters worse and led to
a banking crisis in late 1997 and early 1998. Not anticipating this
setback, in late 1996 the Japanese government inaugurated its Big
Bang of comprehensive financial deregulation designed to complete
the process of creating free, fair, and open financial markets'.
Beginning in late 1998 and early 1999 the government finally
embarked on a major rehabilitation of the Japanese banking system,
including making available some Yen 60 trillion (approximately USD
500 billion) of government funds to recapitalize fifteen major
banks, adequately fund the deposit insurance program, and write off
the bad loans of nationalized or bankrupted banks. One result of
this reform process is that the Ministry of Finance (MOF), which
dominated Japanese financial system policy for most of the post-war
period, has been stripped of most of its former regulatory powers.
The purpose of this book is to describe, analyze, and evaluate the
process that is transforming the Japanese financial system. The
chapters address various issues relating to the transition of the
Japanese financial system from a bank-centered and
relationship-based system to a competitive market-based system.
Questions taken up include: Why did Japanese banks get into such
serious trouble? Why has the MOF lost its immense power? How will
the Big Bang's financial deregulation further change the Japanese
financial system, including the huge government financial
institutions and postal savings system? What are some of the
broader implications of this transition? The book is divided into
three parts: Part I considers the origins of Japan's banking
crisis; Part II focuses on five particularly important areas of
major actual and potential changes; Part III addresses the effects
of the Big Bang, including its potential systemic externalities.
Taken together, this book offers an unusually up-to-date,
comprehensive and thorough appraisal and evaluation of the profound
changes occurring in Japan's financial system.
Franklin R. Edwards Hugh T. Patrick As the 19908 unfold, we stand
on the threshold of a new age of global financial markets. The
seeminglyinevitable, market-driven dynamicofthe international
integration of banking, securities, and futures markets is bringing
about a profound transformation of financial flows and the
efficiency and effectiveness of the domestic and international
markets serving them. Propelled in the 1980s by a variety
offorces-technological, economic, political, and (de)regulatory-the
implications of international financial market integration are
pervasive. This new era promises to raise a host of new public and
business policy issues as well as opportunities. These include
issues of financial market integrity, international
competitiveness, and regulatory harmony. What will the rules of the
game be? How will prudential concerns for the safety as well as the
efficiency of international financial markets, and their national
counterparts, be met? What are the appropriate new institutional
arrangements? How and to what degree will international financial
mar kets be supervised, harmonized, and regulated, and for what
purposes? Whowill be makingthese decisions
andimplementingthem?Thesearethe issues that confront-and
bedevil-policymakers, practitioners, and scho lars alike. 1 2
INTRODUcnON The Context The 1980s were witness to major
transformations of the international political, economic,
andfinancial environment. Amongthe majordevelop ments was rapidly
increasing international financial market integration across major
nations and across financial product markets. The major sources of
financial change were several, interrelated, and reinforcing."
This path-breaking comparative study of the economies of Japan, Korea, and Taiwan analyzes the evolution of the financial systems of each country in relation to their last four decades of dynamic economic growth. Each country study is addressed in two chapters, the first covering macroeconomic aspects of the financial system and the second chapter focusing on commercial banking. The analysis shows how financial development has occurred in two distinct phases. Initially interest rates were regulated to remain below market levels, entry of new financial institutions was restricted, financial markets were segmented, and domestic finance was insulated from world financial markets. The second phase has seen a steady, if sometimes slow, removal of these restrictions. This liberalization has meant regulation now focuses on prudential measures for system safety while financial resources are increasingly allocated through the marketplace. The evaluation of the financial development of Japan, Korea and Taiwan provides significant insights for economists and policymakers. In particular, there are many lessons for less developed markets and transforming socialist economics.
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