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04/30/91

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Project to explore Japan's banking system, its effects on growth

STANFORD -- Developing countries and reforming socialist economies may find lessons in a new project to study Japan's main bank system and its contribution to that nation's economic growth.

Japan's system and modern economic success challenge the standard belief that competitive securities markets are the most efficient form of corporate finance, said Masahiko Aoki, Stanford University economist and head of the Program on the Economy of Japan at the University's Center for Economic Policy Research.

The center is sponsoring the project, which is being organized by Aoki; Hugh Patrick, director of the Center on Japanese Economy and Business at Columbia University; and Hyung-Ki Kim of the Economic Development Institute, the World Bank.

In the postwar Japanese system, a main bank and a borrowing firm develop an intimate, long-term relationship that provides the bank with superior influence and access to information. The main bank typically is the largest lender to the firm, has a long-term loan commitment to it and arranges comprehensive financial services for it. It also holds as much as 5 percent of the firm's shares and sends directors to the company.

This system, often called relationship banking, contrasts to Anglo-American arm's-length banking.

The new project's subjects will include:

  • How the Japanese banking system developed in the postwar period, and how it is managed, including both government policies and the actions of entrepreneurial bank managers and other financial intermediaries.
  • The nature of main banks' monitoring of industrial firms.
  • A comparison of the Japanese system to the U.S., German and South Korean systems.
  • An analysis of the implications to developing economies and reforming socialist economies.

A conference reporting the results of the research is planned for January 1993, with a book to follow.

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