The Abe Cabinet, in the interest of promoting a more globalized and more competitive Japanese economy, has announced that it will seek to repeal Japan's equivalent to the US New Deal-era Glass-Steagall Act, which was repealed in the US in 1999 with the Gramm-Leach-Bliley Financial Services Modernization Act. (The FT's coverage can be read here.)
The Abe Cabinet's move -- like the Gramm-Leach-Bliley Act -- is in some sense a concession to the reality that Japanese financial institutions, to become globally competitive, need to be able to realize the economies of scale and the diversification of services that characterizes major financial institutions from the US and Europe.
But removing the barrier separating banks from brokerages raises the same risks of a moral hazard -- institutions that are "too big to fail," requiring government assistance in the event of trouble -- that the US deregulation did, perhaps even more so, given that Japan's banking system is still on the road to recovery from the bad loan problem.
And what will this mean for the soon-to-be-privatized Japan postal savings bank, which upon privatization will become the world's largest private bank?
The Abe Cabinet's move -- like the Gramm-Leach-Bliley Act -- is in some sense a concession to the reality that Japanese financial institutions, to become globally competitive, need to be able to realize the economies of scale and the diversification of services that characterizes major financial institutions from the US and Europe.
But removing the barrier separating banks from brokerages raises the same risks of a moral hazard -- institutions that are "too big to fail," requiring government assistance in the event of trouble -- that the US deregulation did, perhaps even more so, given that Japan's banking system is still on the road to recovery from the bad loan problem.
And what will this mean for the soon-to-be-privatized Japan postal savings bank, which upon privatization will become the world's largest private bank?
