A Review of Japan's Bank Crisis from the Governance Perspective

Abstract

Why has Japan suffered from the NPL problem for such a long time? We will answer to this question from a governance perspective that emphasizes important influence of the governance structure on bank management. In our opinion, Japan failed to motivate banks to play the role of monitoring essential to the bank-centered financial system. We will stress that there existed a vacuum of governance in the bank management in the sense that bank managers were not effectively disciplined as to attain sufficient prudence in there management. The vacuum of governance accounts for the fragility of the banking sector and, more importantly, the prolongation of the NPL problem in Japan.