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Financial Deregulation and Crisis:An ‘Agency-conflict’ Case of Japan

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  • Hossain, Monzur

Abstract

The main focus of this paper is on the ‘agency-conflict’ during financial deregulations in the 1980s as the potential causality of Japanese banking crisis in the 1990s. Agency conflict is defined as the conflict of interest among the policy makers and agencies (e.g. banks) that arises as a combined effect of heteroschedasticity1 of policy shifts at that time and the overall weaknesses of corporate governance of the Japanese banks. This paper theoretically and empirically tests the hypothesis that “agency-conflict” increases short-term profit and can be a potential cause of the subsequent crisis. First part of the theoretical model based on the Bayesian Learning Model explains how agency conflict can increase profit in brief and second part of the theory explains how banks can be vulnerable to crisis at the outset of the bubble. Moreover, the theoretical model is used as the basis of empirical analyses on the causes to the probability of banking crisis. The paper also provides discussion on a number of interrelated structural changes and agency-conflicting issues that occurred in the Japanese financial system. However, the analyses find that the ‘agency-conflict’ is significant to the probability of banking crisis.

Suggested Citation

  • Hossain, Monzur, 2005. "Financial Deregulation and Crisis:An ‘Agency-conflict’ Case of Japan," MPRA Paper 24856, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24856
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    File URL: https://mpra.ub.uni-muenchen.de/24856/1/MPRA_paper_24856.pdf
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    References listed on IDEAS

    as
    1. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
    2. Hossain, Monzur, 2004. "Did The Asset Price Bubble Matter For Japanese Banking Crisis In The 1990s?," MPRA Paper 24738, University Library of Munich, Germany.
    3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    4. Monzur Hossain & Md. Shahiduzzaman, 2004. "Development of Non Bank Financial Institutions to Strengthen the Financial System of Bangladesh," Finance 0409006, EconWPA.
    5. David Woo & Akihiro Kanaya, 2000. "The Japanese Banking Crisis of the 1990's; Sources and Lessons," IMF Working Papers 00/7, International Monetary Fund.
    6. Flood, Robert & Marion, Nancy, 1999. "Perspectives on the Recent Currency Crisis Literature," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-26, January.
    7. Naoyuki Yoshino & Eisuke Sakakibara, 2002. "The Current State of the Japanese Economy and Remedies," Asian Economic Papers, MIT Press, vol. 1(2), pages 110-126.
    8. Hoshi, Takeo, 2001. "What Happened to Japanese Banks?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(1), pages 1-29, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial deregulations; agency conflict; banking crisis; and corporate governance;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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