Recent Competition in the Japanese Life Insurance Industry

This paper examines a change in the level of competition in the Japanese life insurance industry over the last 17 years. We estimate the first order condition for profit-maximizing insurance oligopolies to obtain the degree of non-competition and collusion. Estimation results suggest that: 1) not only stock companies, but also mutual companies maximize their own profits rather than pay out dividends to policyholders; 2) competition has become stronger since 1995; 3) revision of Insurance Industry Law and failures of insurance companies promoted the competition; and 4) the competition in the recent years is still more lax than the pre-war period.

Silent Large Shareholders and Entrenched Bank Management: Evidence from the Banking Crisis in Japan

We investigate the cause of this banking crisis that has jeopardized the stability of the financial and economic system since the 1990s. Following Hanazaki and Horiuchi (2001), we argue that the deficiency of effective corporate governance of banks in Japan has caused inefficient management. Our focus here is the role of largest shareholders who happen to be banks and insurers. We argue that these large shareholders appear to collude or conspire with management instead of being tough monitors. Consequently, the management became entrenched. Our empirical results show that during the 1980s these "entrenched banks" extended more lending. Even after the collapse of the bubble in the 1990s, they did not dramatically undertake restructuring to cope with the accumulated bad loans.Corporate Governance, Ownership Structure, Managerial Entrenchment, Shareholders Activism

Banking in Japan: Will "Too Big To Fail" Prevail?

This paper reviews the evolution of the Japanese banking sector and the development of the banking crisis in Japan in the context of "too big to fail." It describes the deterioration of the Japanese financial sector caused by the bad loan problems and the failure of policymakers to get a grip on the underlying problems. Even at the start of the new century, Japanese policymakers still continue to struggle to find the right policy response to tackle the banking problems and how to avoid moral hazard behavior intertwined with "too big to fail" concerns. The increasing concentration in the Japanese banking industry, which is now dominated by five huge financial conglomerates, should make it more difficult to definitely end "too big to fail" in Japanese prudential policy. In this respect, we believe that the "too big to fail" policy in Japan will prevail.Too big to fail, Banking crisis, Japan

A Conjectural User-Revenue Model of Financial Firms under Dynamic Uncertainty: A Theoretical Approach

This paper extends the user-cost approach of Hancock (1985, 1991) in two ways. First, our model allows financial firms to behave strategically as well as competitively. Second, we do not assume that financial firms are risk-neutral.Our main object is to derive the index of the degree of competition under dynamic uncertainty using this extended model. In our model, the classification of financial goods into inputs and outputs is always consistent with the classification based on the sign of each of the partial derivatives of the variable cost function with respect to financial goods