Comparison between the US and Japanese banking systems

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Comparison between the US and Japanese banking systems

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Abstract

The Japanese and the Americans have different perceptions of time. This difference exists as part of their culture and the values they advocate. The cultural, political and historical background consequently leads to two different banking forms: the bank-based and the market-based systems. Until the 1990s, many observers acknowledged that the "patient capital vision" that implied a long-term relationship with the banks was greatly a part of the Japanese success. However, the results-oriented American behavior proved its efficiency during the 1990s while Japan was undergoing a severe financial crisis. However both systems have their own advantages and there is no "one best way".

One important cultural difference : time perception
1. The roots of the US and Japanese perceptions of time
2. Polychronic versus Monochronic systems
3. Which effects can implied these differences ?
How the political and historic backgrounds influenced US and Japanese economies ?
1. US evolution
2. Japanese evolution
Results-oriented versus Patient capital
1. Results orientation
2. Japanese patient capital
How could evolve both systems ?
1. The Big Bang reforms
2. The required equilibrium

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[...] The long-term frame fosters high savings from households and this is still one of the pillar of the Japanese financial system (Avery and Elliehausen 1986). - Weaknesses The bank-based system produces less public information and gives more importance to informal arrangements. The implicit contracts such as the life time employment decreased the efficiency of the firms (Shleifer and Summers 1988). The strong bank governance also weaken the internal governance and this is one of the main reason that lead to the 1990's crisis (Kanaya and Woo 2000). [...]

[...] The Japanese Banking Crisis of the 1990's : Sources and lessons, < http:>. Keizai, K. (1985). “Japan : An international comparison”, Tokyo, p5. < http:> Lane H., Distefano J. and Maznevski M. (2000). “International Management Behavior”, 4th edition, Blackwell Publishing, Malden. Mayer, C. (1997). “Financial System and corporate governance : a review of the International evidence”, Wallerfangen/Saar, Germany. Masulis, R. (1980). effects of capital structure policy change on security prices : a study of exchange offers”, Journal of Financial Economics, pp 158-159. [...]

[...] Between 1980 and 1992, the Japanese ratio decrease from 5.16 to 3.93 23.84 while the US ratio increased from 0.42 to Furthermore, firms that announce an increase in leverage usually their firm value by 4.51 percent in a single day (Masulis 1980). This phenomenon added with the tendency for leveraged buyout show that both systems can be complementary. While deregulation, strong corporate governance and weaker administrative governance seemed to be needed for a wealthier financial system, the Japanese have to take into account their specificities and their own values. [...]

[...] The First World War played a great role for the US and New-York City became an influential financial center. The US, while financing mainly the British and the French, became a net creditor of USD 5 billion (Allen 1996). After the First World War, the US entered in a very prosperous period where many households speculated on the financial markets. It created a financial bubble that lead to the Great Crash of 1929. The SEC was created to regulate the financial markets and the Glass-Steagall Act of 1933 was introduced to strengthen the banking system. [...]

[...] II How the political and historic backgrounds influenced US and Japanese economies ? This section will focus on the political and the historic background that played a substantial role in the economies. It will help us to understand their current systems and how their respective economies evolved. US evolution Alexander Hamilton was greatly influenced by the British banking system and founded in 1791 the First Bank of the United States followed by the Second Bank of the United States in 1816. [...]

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