Japanese financial elites for banking supervision in the Ministry of Finance, 1927-98

"Following the collapse of the Bubble economy in Japan, the banking supervisor (Ministry of Finance) and bank examiners were severely criticized from the media. The media insisted that there existed an intimate connection (corruption) between an examiner and a bank. Indeed, human capital has been the key element for banking supervision since the Meiji era in Japan. Yet, previous researches in relation to Japanese financial elites basically targeted at the Minister of Finance or the Governor of the Bank of Japan rather than the Director for the supervisory system. The purpose of the paper is to identify the career path including ‘Amakudari’ (after leaving the office) of the Director of the Financial Inspection Department in the Ministry of Finance. The transition of supervisory philosophy over time, the transformation of examination practices and the effect of the US Occupation reform were included. Thus, the paper explored the structure of the regulatory capture between an ex-Director and a bank in particular. The paper covered the forty-nine Directors of the Financial Inspection Department from 1927 to 1998. The covered period was sectionalized into the following four terms – (1) 1927-1942, (2) 1949-1965, (3) 1965-1981 and (4) 1981-1998. The Director’s education, tenure and career path including ‘Amakudari’ were identified quantitatively in each term, mainly based on the Official Gazette of Japan and the materials of the Ministry of Finance as well as social registers of Japan published by a private company. In addition, the personal history of the Director of the Financial Inspection Department who represented each term was detailed to complement the analysis. The findings of the paper are summarized as follows. First, due to the US Occupation reform in 1949, the personnel practice of the Director of the Financial Inspection Department changed drastically. The expertness aspect rather than the generalist was required, and hence the graduate in economics was newly assigned to the position as well as the term of the Director was extended to three years. However, the new practices came to nothing quickly after 1965. Second, it became evident that none of the ex-Directors was successful in promotion to the administrative Vice Minister of the Finance. The motivation of the Director might be lower than other first-class positions. Third, half of the ex-Directors actually entered the banking sector as the president of the bank after leaving the office. Yet, it is note-worthy that most of them preferred a regional bank which did not suffer a critical bad loan problem. Therefore, the link between the ex-Directors and the Bubble economy in the late 1980s was not so much simple as generally considered."