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Reflections on New Financial System in Japan: Participation Costs, Wealth Distribution,and Security Market-Based Intermediation

  • Kitamura, Yukinobu
  • Suto, Megumi
  • Teranishi, Juro

This paper deliberates on the re-designing of the financial system in Japan, currently ailing seriously. With four conditions in the background - enhanced capability of risk transfer through financial markets, increased participation costs in the financial markets, increases in probabilities of systemic risks, and the pattern of wealth distribution, we will argue the followings: (i) Risk management would make more use of risk elimination by institutional investors and risk transfers through the financial markets. It is urgently needed to promote efficient system of risk transfer through financial intermediaries. (ii) Financial market transaction is an area for institutional investors; not suited for individual investors. (iii) It is necessary to establish an institutional framework to promote active corporate monitoring by institutional investors, who are also principal shareholders. (iv) Banks will play an important role in financing small and medium size firms, - in particular venture firms, when probabilities of systemic risks are alleviated in the future. In this sense, banking is in a state of evolution rather than outright decline. As a policy conclusion, we will stress the importance of participation by individual investors in the mechanism of risk transfers through security market-based intermediation.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13946/1/wp2001-25a.pdf
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Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2001-25.

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Length: 39, [18] p.
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:hit:hitcei:2001-25
Note: September 12, 2001; 6th Revision July 3, 2002, This paper was presented at the conference on Designing Financial Systems in East Asia and Japan: Toward a Twenty-First Century Paradigm. This two-day conference was co-organized by the International Monetary Fund and the CEI. It was held during September 24-25, 2001 at Hitotsubashi Memorial Hall in Tokyo, Japan. A select group of academics, researchers and policy makers from around the world gathered to examine the timely issue of how the financial systems and corporate governance in East Asia and Japan should be redesigned in order to achieve sustainable economic development. The conference included six sessions with 17 papers. All the presented papers were added to the CEI series of working papers. The series, as well as the contents of the conference, can be reached at http://cei.ier.hit-u.ac.jp.
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  1. Kitamura, Yukinobu & Takayama, Noriyuki & Arita, Fumiko, 2001. "Household savings in Japan revisited," Research in Economics, Elsevier, vol. 55(2), pages 135-153, June.
  2. Boot, Arnoud W A & Thakor, Anjan, 1997. "Can Relationship Banking Survive Competition?," CEPR Discussion Papers 1592, C.E.P.R. Discussion Papers.
  3. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
  4. Marcus Miller & Joseph Stiglitz, 1999. "Bankruptcy Protection Against Macroeconomics Shocks: The case for a 'super Chapter 11'," CSGR Hot Topics: Research on Current Issues 08, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
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