BANK RENTS AND UNCERTAINTY. A Legacy of the Subjectivists
AbstractIs it possible to bail Japan out of its lingering financial slump by the means of transition to an Anglo-American financial system and a convergence to Basel pragmatism? This paper argues that the imprudent convergence to an Anglo-American type management in credit risks without the preconditions for diversifying risks and uncertainty have problematically encouraged herd behaviors in lending by the Japanese banks. This paper also sheds light on the understated role of bank rents, which contributed to mediating financial resources to new industries and to pooling monitoring skills within banks. The ill-planned transition may have lost Japan the important components of the traditional â€œrent-basedâ€ monitoring system, which Japan should have reserved in alternative forms. One of these components was the role of transferring rents for incubating new enterprises. The other was giving lenders the incentive and time for developing what we call a relation-based non-algorithmic monitoring style.
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Bibliographic InfoPaper provided by Department of Economics, SOAS, University of London, UK in its series Working Papers with number 123.
Length: 25 pages
Date of creation: Mar 2002
Date of revision:
Banking; Japan; Herding; Risk Management;
Find related papers by JEL classification:
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- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
- Davis, E. Philip, 1995. "Debt, Financial Fragility, and Systemic Risk," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198233312, October.
- Yasushi Suzuki, 2001. "The Crisis of Financial Intermediation, Understanding Japanâ€™s Lingering Economic Stagnation," Working Papers, Department of Economics, SOAS, University of London, UK 116, Department of Economics, SOAS, University of London, UK.
- Dore, Ronald, 2000. "Stock Market Capitalism: Welfare Capitalism: Japan and Germany versus the Anglo-Saxons," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199240616, October.
- Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets: A Review," IMF Working Papers 00/48, International Monetary Fund.
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