Did Amakudari Undermine the Effectiveness of Regulator Monitoring in Japan?

Akiyoshi Horiuchi and Katsutoshi Shimizu
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Akiyoshi Horiuchi: Faculty of Economics, University of Tokyo.
Katsutoshi Shimizu: Institute of Social Science, University of Tokyo

No 98-F-10, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper investigates how the human relationship prevailing between the regulatory authorities and private banks referred to as "amakudari" has influenced the effectiveness of prudential regulation in Japan. We propose a simple model of repeated game to explain the amakudari phenomenon. Our model shows the regulatory authorities utilize monitoring as a tool of obtaining the self-enforcing amakudari relationship at the expense of stringent supervision. The statistical analysis in this paper supports the hypotheses derived from this model. Thus, our paper suggests that the traditional amakudari relationship undermines the prudence of bank management, thereby leading to the fragile banking system in Japan. This paper stresses importance of making the monitoring procedures implement by the regulatory authorities more transparent in order to prevent abuse of discretionary power by the authorities.

Pages: 37 pages
Date: 1998-04
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:98f10

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