Part 1 Money and Finance ????? Chapter 3 Financial Structure and Financial System ???????????

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Part 1 Money and Finance ?????Chapter 3
Financial Structure and Financial System
???????????

• Naotsugu HAYASHI ? ??
• Professor of Economics ?????
• Faculty of Business Administration ????
• Hosei University ????

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1. Market Structure and Financial
Structure ?????????
Market Structure ???? Perfect Competition,
Monopolistic Competition, Oligopoly, Monopoly and
other forms of competition ????????????????????
????? Financial Structure ???? the structure
characterized by the mechanism of fund
allocation, the flow of funds
??????????????????????????????????
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2. Flow and Stock ????????
Flow ??? a stream of financial transactions
during a certain period. An amount of flow. For
instance, the flow of money from January 1st to
December 31st ????????????????? ?described by
Money Flow Table (Financial Transaction Table)
??????? (?????) In the case of the
transactions of real goods and services, flows
are described by Profit and Loss Statement or
Income Statement
??????????? Stock ????a balance of financial
assets or liabilities at a certain point of time.
An amount of stock. For example, the balance of
money as of December 31th ???????????????????
?Financial Asset and Liability Table ?????????
Balance Sheet of Assets and Liabilities
???????????
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3. Real Assets and Financial Assets ?????????
Holding assets Real assets Financial
assets ????????????? Real Assets Tangible
Fixed Assets ?????????? land, factories,
machinery and other physical assets
??????????????? Financial Assets ???? cash,
deposits and securities ???????????????????
Sources of funds to buy assets ??????? net
wealth (self fund) financial liabilities
(borrowed fund) ????(????)???????(????) In the
whole economy, financial assets financial
liabilities ? real assets net
wealth ?????????????????????????
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4. Flow of Funds and Financial Surplus or
Deficit ??????????
Surplus Unit An economic sector in which
financial assets exceed financial liabilities in
the flow of funds table, and thus net wealth
exceed real assets ??????????????????????????????
????? Deficit Unit an economic sector in which
financial liabilities exceed financial assets in
the flow of funds table ?????????????????????????
?????????? ?This structure in the flow of funds
is called the Structure of Financial Surplus
and Deficit ????????????? Funds flow from
surplus subjects to deficit subjects in the
financial market ???????????????????????
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5. Japans Structure of Financial Surplus or
Deficit ??????????
Corporate Business Sector ?????? ?had been
insufficient of funds and a deficit unit in
post-war period, because it had been making a
great amount of equipment investment since the
high-growth era. After the low-growth era, it
increased liquidity on hand, but it was still in
a deficit. ???????????????????????????????????
????????????????????????? Private Individual
Sector ???? ?has been throughout a surplus unit
since the high-growth era and a main supplier of
funds ??????????????????????????????????
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5B. Japans Structure of Financial Surplus or
Deficit ??????????
Government (Public) Sector ??(??)?? ?has been a
deficit subject since the high-growth era and its
deficit remarkably increased due to issuing the
huge amount of national bonds after the first oil
shock in 1973 ????????????????????????????????
??????????????? Foreign Sector ???? ?was a
surplus subject and a supplier of funds due to
Japans excess imports during the high-growth
era, but became a deficit subject due to Japans
excess exports after the late 60's.
??????????????????????60?????????????????????????
???
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5C. Japans Structure of Financial Surplus or
Deficit ??????????
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6. Indirect Finance Dominating System ????????
After the World War 2 in Japan, production
capital was destructed, firms had not accumulated
enough capital, securities markets had not
developed sufficiently ???????????????????????
???????? ? commercial banks gathered small
deposits from all over Japan and bundled them to
finance indirectly to business companies
????????????????????? ?Indirect Finance
Dominating System based on Main Bank System
???????????????? similar to West Germany
???????
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6B. Indirect Finance Dominating System ????????
?in the 80s the progress of financial
liberalization caused a retreat in indirect
financing 80???????????????????? ?the bubble
economy promoted an increase in corporate equity
financing in the late 80's. Business companies
began to think direct financing increasingly
important ????????????????????????????????
At the same time, bank lending had surged and
caused indirect financing to comeback
?????????????????????? ?In the 90s the bubble
economy collapsed and a stock market slump became
serious and direct financing detracted
90?????????????????????
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7. Over-Borrowing ??????????
Over-Borrowing ???? companies made massive
amount of equipment investments significantly
exceeding their savings during the high growth
period in Japan, they raised massive amount of
outside funds by indirect finance through banks
???????????????????? ??????????????? ?As the
Japanese economy shifted to a low growth period,
investment chances decreased and their cash at
hand increased, borrowings decreased
significantly ???????????????????????
?????????? bank loans / GDP was about 60
percent (about 40 in the U.S.)
????/GDP??60(????40)
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7B. Over-Borrowing ??????????
?During the bubble period the ratio increased to
about 150 percent temporally due to financial
technology ???????????????????(??GDP?150?)
?After the bubble crashed and a huge amount of
bad loans were brought about, excessive borrowing
reduced and the ratio of bank borrowings to GDP
decreased to about 100 percent ?????????????
????/GDP??100???
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8. Over-Loan ???????
Over-Loan ???? banks lent excessively to
firms in order to meet the strong corporate
demand for investment funds the Bank of Japan
lent excessively to banks in order to meet their
strong demand ??????????????????????????
????????????????????? ?in the low growth
period, the dependence of companies on bank
borrowing and the dependence of banks on BOJ
borrowing decreased and the over loan also tended
to decrease ???????????????????????????????
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8B. Over-Loan ???????
?During the bubble, bank lending to companies
surged due to financial technology and excessive
loans revived again ??????????????????????????
???? ?In the 1990s, the bubble collapsed and a
massive amount of bad loans were brought about to
suppress over-loans ?????????????
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9. Unbalanced Distribution of Funds ????
During Japans high growth period????? ? city
banks had been constantly lending significant
amount of funds to companies ? their financial
position of lending and borrowing was negative
???????????????????????????????? regional and
other banks had a positive financial position of
lending and borrowing ?????????????????????????
? during the low growth period, this unbalanced
distribution of funds also tended to decrease
???????????????????? ?during the bubble
period, this unbalanced distribution of funds
also tended to increase ????????????????
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10. Institution and System ???????
Institution ?? Rules and mechanisms that are
determined by the laws of a state (ex. Financial
institution) ????????????????????(?.????)
System ???? rules and mechanisms that include
those both determined and not determined by the
laws of a state (ex. Financial system)
???????????????????????(?.??????)
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11. Monetary Institution and Issuing Institution
?????????
Legal Tender ???? a good that is determined
as a medium of indirect exchange and given a
power of compulsory circulation by a state
???????????????????????? ??????????????
Monetary Institution ???? an institution of
money that is determined by a law of a state
monetary unit, types of money, mintage right,
issuing rule, and etc. ??????????????????
?????????????????????
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11B. Monetary Institution and Issuing
Institution ?????????
Issuing Institution ????rules of issuing money
and paper money ?????????????? Paper
money is issued by the BPJ. Coin (auxiliary hard
money) is issued only to the BOJ by the
government, and therefore the circulation of
coins is determined by the BOJ
??????????????(????)???????? Paper money
is made by the National Printing Office and coins
are made by the National Mint, both of which are
national agency ????????????(?????????)
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12. Standard System, Gold Standard and Silver
Standard ??????????????
Standard Money ???? the most fundamental
money that plays a role of measure of
value???????????????????? Standard System
???? the system that determines standard money,
silver standard and gold standard?????????????????
????? Gold Money Standard ????? gold money is
freely coined and abolished and such gold money
is adopted as standard money and
circulated??????????????????????????? Gold
Bullion Standard ?????? gold bullion is bought
and sold only for international settlements
between states?????????????????????????? Gold
Exchange Standard ?????? one state adopts gold
standard and the other states determine their own
monetary unit on the basis of that monetary unit
linking to gold standard indirectly through that
state?????????????????????????????????????????????
?
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13. Managed Currency System ??????
Managed Currency System ????? a monetary
system that the monetary authority does not
determine certain goods as standard money and
determines discretionally the amount of issuing
money ???????????????????????????????????????
free standard or paper money standard
???????????????? ?it can easily achieve domestic
equilibrium, but it tends to contradict to
international equilibrium ????????????????????
????
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14. Banking System ????
Bank ?? financial institutions that take
deposits and lend them and play a role of credit
creation ??????????????????????????? Banking
Institution ????Rules that determine banks
organizations, business, services, etc. by law
??????????????????????? Specialization Principle
?????? each bank is specialized in one kind of
financing business??????????????? a separation
of short-term from long-term financing, a
separation of ordinary banking from trust
banking, a separation of medium- and small-sized
business finance from ordinary finance, and a
separation of banking from securities
dealers??????????????????? Simultaneous Operation
Principle ?????? each bank can do more than two
kinds of financing business?????????????????
universal banking ???????????
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15. Branch Banking System and Single Banking
System ?????????????
Branch Banking System ?????? a banking system
that banks can hold a large number of branches
throughout the country UK, Japan, Canada
??????????????????????? ??????????? Single
Banking System ?????? a banking system that a
bank has only single branch and there exist many
single banks in each region The US adopted
single banking system on the basis of MacFadden
Law that prohibited interstate banking business
??????????????????? ???????????????????????
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16. Financial System ????
Financial System ???? a system that is related
to finance whole including monetary institutions
and banking system ??????????????????? Japan
adopted a branch banking system under the
influence of the UK, but based on the experience
of the financial crisis in 1930s, Japan adopted
specialization banking principle
?????????????????????????????????????????????????
?????????? Separation of Banks from Securities
Companies ???? based on the Securities
Transaction Act ?????????????????????? a
similar US Banking Act of 1933, Glass-Steagall
Act, Germany adopted universal banking
system ???????????????(1933????) ????????????????
????????
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17. Business Field Regulation and Financial
System Reform ?????????????
Regulations that separated financial
organizations according to their type or field of
business ?????????????????? ?unsuitable to
the new age of financial liberalization and
internationalization????????????????? ?the
Reform Act of Finance and Securities in 1993
??????? allowed each business type to enter
other type of business by using its subsidiary
??????????????????????? Subsidiary Method by
Business Type ???????? Canadian method
????? ? Financial Big Bang in 1998 introduced
a financial holding company system and promoted
further liberalization. 1998???????????????????
???????????
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18. Regulation and Liberalization of Interest
Rates ??????????
Artificial Low Interest Rate Policy ????????
In postwar Japan, the Bank of Japan pegged
artificially interest rates to a very low level
according to the Special Act of Interest Rate
Adjustment in 1947 and supplied abundant amount
of cheap growth money ????????????????????????
?????????????? In the US, Regulation Q regulated
almost all interest rates ?????????????Q?????????
??? ?as part of financial liberalization,
deregulation was promoted and interest rates were
liberalized in 1980s 80??????????????????????
??????????
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19. Foreign Exchange Control System and
Liberalization ??????????????
Foreign Exchange Control System ???????? the
Foreign Exchange and Foreign Trade Control Law
and the Foreign Capital Act were enacted, and
prohibited in principle and imposed various
restrictions on free international trades and
capital movement ????????????????????????????
the protectionism of backward capitalism
???????????? ?development of international trade
and increase in international capital movement ,
the shift to a floating exchange rate system in
1973 ???????????????? ?73????????????
?Liberalization of International Trade and
Capital Movement, Liberalization of Foreign
Exchange in 1980 ????????????1980???????????
??? ?Complete Liberalization of Foreign
Exchange by Revision of the Foreign Exchange Act
in 1998 1998???????????????