BANK RENTS AND UNCERTAINTY. A Legacy of the Subjectivists
Is 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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- Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets; A Review," IMF Working Papers 00/48, International Monetary Fund.
- Dore, Ronald, 2000. "Stock Market Capitalism: Welfare Capitalism: Japan and Germany versus the Anglo-Saxons," OUP Catalogue, Oxford University Press, number 9780199240616.
- Yasushi Suzuki, 2001. "The Crisis of Financial Intermediation, Understanding Japanâ€™s Lingering Economic Stagnation," Working Papers 116, Department of Economics, SOAS, University of London, UK.
- Davis, E. Philip, 1995. "Debt, Financial Fragility, and Systemic Risk," OUP Catalogue, Oxford University Press, number 9780198233312.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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