The Rise and Fall of Abacus Banking in Japan and China phần 3 potx

Chapter 2

The Rise of

Abacus Banking in Japan

In the summer of 1997, in the middle of the banking crisis, one of the

authors tried to wire money to the United States through a major bank

in Japan. To his dismay, the employee-crowded branch could not handle

the wire transfer and he had to visit another downtown branch, not to

mention that he had a hard time finding someone who could speak Eng￾lish. But even when he arrived at the other branch, things were no better.

He received several greetings, a box of tissues, and free blood pressure

monitoring services, but not the ‘‘core’’ banking services he expected. In

fact, it was easier for the Foreign Exchange desk manager at the bank to

recommend a ‘‘competing’’ bank rather than undergo the procedure of

wire transferring. In the end, after waiting for over an hour and after

checking his blood pressure several times in the monitor across the bank

counter, the desk manager did him a ‘‘favor.’’ He went to an ATM ma￾chine to withdraw the cash, counted the money three times—one with

his abacus, another with an electronic calculator, and a third in his PC—

and wired it to the United States, for a hefty triple fee: a currency con￾version fee, a wire transfer fee, and the loss of ten days’ interest (the

time it took the bank to have the funds transferred).

Though just a personal experience, this example demonstrates how

Japanese banks treat their clients, and how such treatment differs from

that offered by banks in other countries, especially the United States.

Specifically, in the United States, a visit to the local branch of a major

20 The Rise and Fall of Abacus Banking in Japan and China

bank and a moderate fee are sufficient for wiring money overnight, all

over the world. But the difference between Japanese and U.S. and Eur￾opean banking extends beyond money-wiring procedures and fees to the

ways that Japanese banking performs its fundamental functions and

earns its income, and the ways that government bureaucrats supervise

the industry and control the behavior of bank managers.

In the United States, private banks are true for-profit institutions. Ac￾cording to prevailing corporate governance, individual and institutional

stockholders who appoint professional managers to oversee the day-to￾day operations own them. In this sense, managers are accountable to the

bank stockholders. They must enhance stockholder value or risk losing

their positions.1 At the same time, bank managers must limit traditional

risks (liquidity and credit risks), market risks (foreign currency risk, in￾terest rate risk, liquidation risk, etc.), and operational risks. Government

regulators impose a number of constraints to limit competition in the

banking industry and the risks associated with it. The Glass-Steagall Act,

for instance, limits cross-state competition and competition between the

banking and securities industries. Yet government regulators do not

monitor the day-to-day operations of individual banks and control the

behavior of bank managers. This has been especially true since the late

to mid-1970s, when currency liberalization, financial deregulation, and

globalization weakened the Glass-Steagall Act and increased both market

opportunities and risks. In this sense, U.S. bank managers perform a dual

function—as accountants, monitoring fund flows in and out of the bank

treasury, and as credit risk analysts, evaluating the risk and returns of

investment alternatives.

In contrast to American banks, Japanese private banks are not true for￾profit institutions. According to the prevailing corporate governance,

bank stockholders appoint management to oversee day-to-day opera￾tions, but have little control over it.2 Specifically, banks that are owned

by large corporations and operate under what is known as keiretsu re￾lations are not too concerned with profits, but rather with relations and

mutual obligations with other keiretsu members. In this form of ‘‘rela￾tional banking,’’ banks serve more as corporate welfare agencies, pro￾viding low-cost financing to their keiretsu clients who are also their

shareholders as compared to other clients, rather than as true, profit￾maximizing enterprises. Japanese banks are not overly concerned with

traditional banking risks either. Under a policy known as ‘‘overlending,’’

for instance, the BOJ has virtually eliminated liquidity risk.

Keiretsu relations, fast economic growth, and rising asset prices have