Information asymmetry and agency problems in financial politics: Dysfunction of the Japanese financial system from 1992 to 1998.

摘要

Since the 1980s, the majority of economies in the world have experienced some financial sector problem, whose causes are attributed to global financial deregulation and innovation in financial industry during the period. The remedies are also common: identifying degree of non-performing loans, separating troubled banks from sound ones, closing insolvent intermediaries by injecting massive public fund. Japan's financial crisis throughout the 1990s is no exception. What is specific in Japanese case is its long and stagnated policy process until proper measures were executed.; This essay explains the dysfunction in Japan's financial politics by a unique “information structure” of the country's financial governance system: concentration and monopolization of administrative power and banking sector information by a governmental agency, the Ministry of Finance (MOF); and, the autonomy of MOF's financial administration which is effectively insulated from politicians' (and hence the public's) intervention. In other words, MOF, the supervisory agency, enjoyed power and private information on financial sector governance. At the post-bubble financial crisis, the information asymmetry above resulted in two kinds of policy dysfunction.; First, MOF, with its private information on banking sector, tried to conceal the sector's troubles by postponing resolution of insolvent intermediaries, since such resolutions would damage the ministry's reputation, invite politicians' intervention, and deprive MOF of autonomy in financial administration. Due to such a delay from the “moral hazard”—equivalent with U.S. regulators' behavior at the Savings and Loan debacle—prevented the government's prompt action, which is required at financial crises.; Second, once the sector's troubles were revealed, politicians and the public could not accept any information or policies provided by MOF, because they thought that the ministry might still cheat them to save its power and/or insolvent banks. This “lemon” effect (a la Akerlof), appearing repeatedly at such critical moments as the jusen resolution in 1996 and the “Finance Diet” in 1998, impeded the making of consensus in policies necessary for saving the economy from financial crisis.