قوانین و مقررات مالی در ژاپن : یک بررسی شش ساله از آژانس خدمات مالی

The paper provides a critical review of the Financial Services Agency (FSA) of Japan since its establishment in June 1998 (as the Financial Supervisory Agency) to June 2004. During the six year period, the FSA faced the challenge of addressing severe insolvency problems in banking as well as life insurance industries. The paper argues that the initial separation of the supervisory role (in the Financial Supervisory Agency and the Financial Reconstruction Commission) and the policy planning role (in the Ministry of Finance) was useful in the sense it allowed the FSA to have a firm stance on the insolvency problem that was partially created by the failure of the past financial regulatory policy. Even after the creation of the FSA, the Bank of Japan remained as another bank supervisor. This seems have made the central bank reluctant in relaxing monetary policy out of the fear that such loose monetary policy would actually discourage re-organization of banking industry. This suggests a problem of having the central bank as a bank supervisor. For the life insurance companies, the FSA (both old and new) has not been successful in intervening (using prompt corrective action) before the failures. Finally, the paper also points out the important role of the leadership at the FSA that shapes the financial regulation, and suggests a problem of appointing a politician to this role.

The creation of the new financial regulatory structure was predominantly motivated by the political factors. The goal of many politicians was not so much to improve the system of financial regulation but to reduce the power of the MOF bureaucrats. Why the politicians suddenly decided to strip much power from the MOF is an interesting question, but not what we focus here.1 Instead we consider some economic rationales that have been pointed out during the policy debate, although these economic rationales alone would not have been sufficient to get the political support for the change. First, throughout the 1990s, the MOF repeatedly failed to handle the insolvencies and other problems in the financial sector. Jusen problem (1992–1996), the “two credit cooperatives” problem (1994–1995), the Hyogo Bank failure as well as Kizu and Cosmo credit union failures (August 1995), and Daiwa Bank losses from a rogue trader and hiding losses in the New York (1995) all contributed to hurt the reputation of the MOF as a competent financial regulator.2 It was argued that the problem lay in giving too much power to the MOF, both financial planning/legislative power and financial inspection/examination power. If the supervision framework is designed by the same people, tough actions against banks are unlikely to come, as it would suggest some faults in the initial design of policy. Second, it was also argued that fiscal authority should not be in charge of the financial policy at the same time. As bank resolution has fiscal implications, the MOF had a tendency to forbear rather than to make the fiscal liability explicit by letting insolvent financial institutions fail. This was considered to be an important reason why the banking problem of the 1990s was allowed to grow to a monstrous size. Third, the concentration of so much regulatory power at the MOF was believed to have led to serious corruption. Some MOF officials had been treated to wining, dining, and golfing by bankers for a long time. A series of gross scandals hit the Ministry in the mid-1990s. One of such scandals involved a MOF official taking a free trip to Hong Kong, paid for by an owner of a credit union that subsequently went bankrupt. The Ministry only imposed a slap-on-the-wrist sanction on this official. When investigated, many other corrupt behaviors of the MOF officials became exposed. The series of scandals was also important for turning public opinion against the MOF and making the break-up of the MOF even more politically attractive. The MOF's regulatory power was weakened in several ways. Separation of its financial supervisory role from the MOF was one of them. The Banking Bureau and the Securities Bureau, which were in charge of supervision of banks and securities houses respectively, were abolished and their jobs were transferred to the Financial Supervisory Agency (old FSA). The (old) FSA also absorbed majority of staff at local offices of the MOF whose jobs were inspection of local financial institutions. Additional inspection staff was hired to boost the examination capability of the old FSA, although many observers still expressed the concern that the size of inspection staff was too small. The so-called “planning” function of the financial policy temporarily remained within the MOF. The planning function includes drafting various rules and regulations for the financial industries. Until the Financial Services Agency (new FSA) was established (July 2000), the planning function stayed in the newly created Financial Planning Bureau of the MOF. Another institutional change that aimed to reduce the power of the MOF was the passage of the New Bank of Japan Act in 1997 (effective April 1998). Under the new law, the Bank of Japan was given legal independence from the MOF for the first time in its history. Governor's tenure of 5 years would be guaranteed, and the monetary policy would be decided solely by the Monetary Policy Board where the government does not have any votes. Unlike many countries, where the central bank independence was legislated so that it can resist the government's pressure to inflate the economy, the Bank of Japan was already successful in containing the inflation for the most of 1980s and 1990s even without formal independence. Granting legal independence to the Bank of Japan was another way to reduce the power of the MOF, which confirms the highly political nature of the change in Japanese financial regulation around this time. The government also introduced a new law to curb the scandals by public officials not only at the MOF but in general. The National Public Service Ethics Act of 1999 severely restricted public officials’ socializing with interest groups. The rules against golden parachute (amakudari) were also tightened in 1998. The set of industries that an official cannot accept amakudari within 2 years after retirement was extended to cover all the industries under the Ministry's supervision (rather than the industries that were supervised by the Bureau that the official worked last). It is worth noting that the change of the financial regulatory structure in Japan was not motivated by the vision to create a single authority of financial supervision. Indeed the MOF already covered the various areas of financial industry ranging from banking business, securities business, to insurance business. Unlike the case in the United Kingdom, creation of a super regulator with comprehensive coverage of all the financial services was not an objective. As we discussed above, the primary objective was political. The politicians tried to reduce the power of the MOF by separating financial supervision from its other functions (budgeting, tax collection, etc.). As a byproduct of the reform, however, the old FSA ended up having a broader coverage in financial supervision than the MOF. For example, agricultural cooperatives, which used to be supervised only by the Ministry of Agriculture, Forestry and Fishery (MAFF), were put under co-supervision of the FSA and the MAFF. Credit unions, which used to be supervised by prefectural governments, were moved under the FSA's supervision after April 2000. Table 1 shows the change of the regulator for each type of financial supervisions that took place when the FSA was established in 1998.

The new framework for the financial regulation in Japan was established in June 1998 by separating the supervision and examination function from the MOF. The separation of the financial supervision from the MOF as the fiscal authority made it possible for the old FSA to close insolvent banks without worrying so much about making fiscal liability of banking problem explicit. Moreover, the old FSA did not have planning function of financial regulation. The separation of planning function and supervision function made the old FSA less hesitant in closing down insolvent financial institutions, because they did not have to worry about a possible embarrassment to those who designed the ex ante rules and regulation. Under the new FSA, which started in July 2000, both planning and supervision functions are housed in the same organization. This seems to have made the FSA more cautious about closing insolvent banks. Another problem of the design of the financial regulatory structure can be found in that the central bank was allowed to remain an important bank supervisor. This seems to have caused the BOJ to be reluctant in relaxing monetary policy so that re-organization in the banking industry is not discouraged. The deflation continued and that made the FSA reluctant in dealing with the non-performing loan issue in a decisive manner. The FSA (both old and new) never seems to have tried aggressively to limit the failure of insurance companies. Prompt corrective action was ordered only on one occasion. Even in this case, the intervention was not successful in reducing the cost of the failure. Double-gearing between mutual life insurers and banks is a serious problem, but the FSA has not actively tried to limit the practice. In this sense, the FSA has not used its potential to be a comprehensive regulator of financial conglomerates. Another point of consideration is whether it makes economic sense to have a politician as the head of the FSA. When a failure of a bank is expected to cause bankruptcy of large companies in a particular region, politicians from that region would put political pressure on the FSA to adopt forbearance policy. Whether the head of the FSA can resist such a pressure depends on strength of the person. Whether this is an economically optimal institutional arrangement should be examined in the future. The FSA under Takenaka, who was not a politician when he became the minister, was far more successful in dealing with the non-performing loan problem.