How Finance Is Shaping the Economies of China, Japan, and Korea by Yung Chul Park

Author:Yung Chul Park
Language: eng
Format: epub
Tags: -
Publisher: Columbia University Press
Published: 2013-10-04T04:00:00+00:00

Regulatory Change

Since the 1970s the government has engaged in a piecemeal process of deregulation of both financial and nonfinancial sectors of the economy. From the mid-1990s to the mid-2000s, however, some acceleration appears to have occurred, driven by both distress in the financial sector and the desire to promote Tokyo as an international financial center. A key driving force in accelerating change was the crisis of 1997–1998, when efforts to contain the nonperforming loan problems in the banking sector by traditional approaches failed and the banking sector neared collapse. Some of the most important changes are listed in table 3.10.

Summarizing the changes is difficult, as the common practice has been to make individual small regulatory changes and then codify and expand their scope through major changes in various laws. But added up over time, significant legal changes have occurred.

In 1990 Japan had no formal procedures for handling failed financial institutions, relying instead on an informal process of government-arranged takeovers of weak institutions by strong ones. Regulation made it difficult for corporations to spin off individual operating divisions (or for other firms to buy those divisions). Half-year financial reports from corporations were widely regarded as inaccurate. And regulation and transaction taxes inhibited Tokyo’s role as an international financial center.

By around 2006 Japan had laws to handle failed financial institutions and had experienced two rounds of recapitalization of banks with government funds; new rules made mergers and acquisitions easier; mandatory quarterly financial reports were required for all listed firms; accounting rules were generally more robust; rules governing international finance were eased; and financial firms were permitted to establish holding companies as a means for expanding into previously separated segments of financial activity.

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