Banking Systems:Case study of Japan

Topics: Bank, Central bank, Japan Pages: 7 (2293 words) Published: December 3, 2013
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History
Japan opened up to the western powers in the year 1959 (Tamaki 1995, p. 5). This was after it had been secluded for 230 years. The opening up had some implications on the ruling regime, the Tokugawa Shogunate. The shogunates held meetings and agreed to open up their ports in a bid to kick away the slogan “revere the empire, expel the barbarian.” This would however not go down well with the samurai extremists who were not open to the idea. The movement and their slogan lost control when the Satsuma and Choshu joined in the agreement considering they were the strongest domains. They gathered their well equipped army and attacked Shogunate in 1867. The Samurai and Choshu had to be burdened by their weak forces. More importantly they were responsible for management of funds in the new Meiji Government and thus they had to heavily rely on old merchant bankers. Even before the arrival of the demanding foreigners, there existed a quasi banking system in place in Japan. Bakufu government had authorised merchants known as ryogae to trade in Tokyo (Edo) and Osaka. They resisted the influx of foreign traders and settlers at the ports and thus deployed a larger number of ryogae in this regions. Taxes were previously paid in kind, using rice. It was the real currency until 1973. Edo and Osaka had grown to their big names due to handling rice and thus they had developed the initial banking functions (De Roo 1998, p. 205) In the Edo era, the banking scene was thus dominated by the ryogae who were in fact merchants but offered a variety of banking services to approved clients. In western terminology, the can be referred to as merchant bankers. All the ryogae were led by Junin ryogae which consisted of then most wealthy houses. Konoike and Sumitomo were among them and they have grown to be vital in the banking system. Another was Mitsui which facilitated the transition. The big houses were commissioned by Bakufu government to sustain the system, for example by loaning the Bakufu and in the exchange of older coins for new ones. Osaka ryogae were better of in the loaning services than in Edo. The mitsui for example believed loans were the reasons many merchants failed. The domain had the privilege of handling Bakufu’s money in Osaka, Edo and Kyoto. An important factor was that the ryogae had resources from their money and the money people had entrusted in them. They operated in a lot of caution and circumspection in that they never divulged their financial worth even to family. All decisions regarding capital, loans, borrowing thus lay with the ryogae. It was common for the interest to be paid in deposits. As the Shogunate regime ended, there were two types of accounts, the current and deposit accounts. Deposit taking led to the establishment of two significant proto banking models: The first was interest and the second was deposit reverse ratio. They developed two documents for these types, the ryogae’s note and the depositors order. The methods were applied appropriately to grow the ryogae business into a profitable venture. The roots of the Japanese banking system can thus be traced to ryogae and their ideas.

The Dai-Ichi Bank, originally Dai-Ichi Kokuritsu Bank (lit. First National Bank) was literally the first bank and the first joint stock company ever to be established in Japan. Established by an industrialist Shibusawa Eiichi in 1873, it was originally empowered to issue banknotes, until the Bank of Japan assumed this function in 1883. Subsequently, it became a purely commercial bank based in Tokyo. In 1873, the Dai-Ichi bank ltd. was established by industrialist Shibusawa Eiichi and it was basically the first bank in Japan. It was meant to issue banknotes up until the time the BOJ too took over this role.

Regulation
The regulatory process is carried out by Financial services Agency (FSA). It serves to controls the insurance,...

References: Hughes JE, & MacDonald SB, 2002, International banking: text and cases, California: Addison Wesley. Pp. 40-45.
Tamaki N, 1995, Japanese banking: a history, 1859-1959: Cambridge University Press. Pp. 4-33.
Tsutsui WM, 2010, Banking Policy in Japan: American Efforts at Reform During the Occupation: Taylor & Francis. Pp. 88-92.
Kanaya A & Woo D, 2000, The Japanese banking crisis of the 1990s: sources and lessons, Issues 2000-2007: International Monetary Fund. Pp. 4-37.
Fare R & Grosskopf S, 2005, New directions: efficiency and productivity
Springer. Pp. 134-148
Loukoianova E, IMF and Monetary and capital dept. 2008, Analysis of the efficiency and profitability of the Japanese banking system, Issues 2008-2063: International Monetary Fund. Pp. 3-21.
De Roo A, 1998, Yearbook law & legal practice in East Asia: Martinus Nijhoff Publishers. Pp. 199-211.
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