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Uncertainty, financial fragility and monitoring: Will Basle-type pragmatism resolve the Japanese banking crisis?

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  • Yasushi Suzuki

Abstract

This paper argues that the naive adoption of an Anglo-American approach to the management of credit risk as the prescription for Japan's prolonged financial slump would amount to a very risky strategy. The neoclassical arguments for the adoption of Basle-type pragmatism and the adoption of Anglo-American financial norms neglect the important question of how to manage Japanese lenders' uncertainty, which affects their assessment of credit risk. We point out that an ill-planned transition without mechanisms for diversifying risk and uncertainty has encouraged herd behavior in lending. We also argue that Japan's traditional rent-based mode of financial intermediation and monitoring performed important functions, including the incubation of new enterprises, and should have been retained in alternative form rather than abandoned.

Suggested Citation

  • Yasushi Suzuki, 2005. "Uncertainty, financial fragility and monitoring: Will Basle-type pragmatism resolve the Japanese banking crisis?," Review of Political Economy, Taylor & Francis Journals, vol. 17(1), pages 45-61.
    • Handle: RePEc:taf:revpoe:v:17:y:2005:i:1:p:45-61
    DOI: 10.1080/0953825042000313807
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    References listed on IDEAS

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    1. Mr. Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets: A Review," IMF Working Papers 2000/048, International Monetary Fund.
    2. Herbert A. Simon, 1996. "The Sciences of the Artificial, 3rd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691914, April.
    3. Davis, E. Philip, 1995. "Debt, Financial Fragility, and Systemic Risk," OUP Catalogue, Oxford University Press, number 9780198233312.
    4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    5. Joseph E. Stiglitz, 1996. "Whither Socialism?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691825, April.
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    Cited by:

    1. Eric Tymoigne, 2010. "Detecting Ponzi Finance: An Evolutionary Approach to the Measure of Financial Fragility," Economics Working Paper Archive wp_605, Levy Economics Institute.
    2. Eric Tymoigne, 2014. "Measuring macroprudential risk through financial fragility: a Minskian approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(4), pages 719-744.
    3. Eric Tymigne, 2011. "Financial stability, regulatory buffers and economic growth after the Great Recession: some regulatory implications," Chapters, in: Charles J. Whalen (ed.), Financial Instability and Economic Security after the Great Recession, chapter 6, pages 114-140, Edward Elgar Publishing.

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