ظهور نظارت بر بازار در بانک های ژاپنی: شواهدی از بازار اوراق فرعی قرض

This paper uses a unique data set on the spreads of subordinated debts issued by Japanese banks to investigate the presence of market monitoring. The results show that subordinated debt investors punished weak banks by requiring higher interest rates. Moreover, I find that the spreads and the sensitivity of spreads to Moody’s bank ratings both increased dramatically after the Japanese government allowed a large city bank, Hokkaido Takushoku Bank, to fail and passed the Financial Reform Act and the Rapid Revitalization Act in the late 1990s. These results suggest that the decline of conjectural guarantee led to the emergence of market monitoring. In addition, I find the relationship between spreads and accounting measures of bank risk to be quite fragile.

What is the best way to control the excessive risk-taking by banks? Although governments around the world traditionally rely on direct prudential supervision and regulation to achieve this goal, this approach has a poor track record. Barth et al. (2004) use cross-country regression to show that prudential regulation focusing on capital adequacy requirement and restriction on banks’ risk-taking activity does not necessarily lead to banking sector stability. That is, bank regulators have repeatedly failed to contain the moral hazard incentives of banks.

This paper attempts to investigate the risk-return relationship in Japanese banks’ subordinated debts, using a unique set of data on subordinated debt yields. It reaches two main findings. First, I find a strong and robust relationship between the credit spreads of subordinated debts and Moody’s ratings while at the same time I find the statistical relationship between the spreads and the accounting measure of bank risk (capital adequacy ratio, in particular) to be rather fragile. Second, in the late 1990s when the government allowed Hokkaido Takushoku Bank to fail and required the subordinated debt holders to accept a haircut, market monitoring intensified. In particular, I find that the interest rates on subordinated debts rose and that financially weak banks began paying higher rates than strong banks, which is consistent with the findings of previous studies that investigate the presence of market monitoring in the US and Europe.