The role of long-term credit banks within the main bank system

One problem with the provision of long-term investment financing by commercial banks is that it can put at risk the uninterrupted provision of liquidity services to the population at large. Though economic models often abstract away from this problem with the assumption that banks providing liquidity services have the ability to diversify away the long-term risk of their outstanding loans, regulators have rarely been so sanguine. In general, the U.S. has depended on the existence of well-developed securities markets to supplement and in many cases replace the provision of long-term debt by commercial banks. In Japan - particularly the Japan of the high-growth era -the answer has lain rather in the creation of special classes of banks whose principal sources of financing are other than individual deposits. This paper examines one such class of institution -that of the long-term credit banks