Japan's financial system and the evolving role of main banks

Following a general discussion of the evolution of Japan's financial system and its broader relevance, this paper briefly discusses three issues. First, which is a better financial system: one based on banking (and main banks); or one based on competitive, efficient markets for the issuance of securities, notably bonds, shares, and commercial paper? Second, what is the requisite institutional infrastructure and what are the most appropriate and efficient institutional arrangements to finance the priority activities and sectors as defined by a country's development strategy? Third, from a political economy perspective, how are the rents generated in regulated systems characterized by below-market interest rate ceilings (e.g., financial repression and hence reliance upon bank loans) allocated among different potential claimants? Are the banks no more than handmaidens of authoritarian and/or corrupt regimes