Question

1. What are the efficiencies on Japanese firm with using Japanese main bank system, and the effects of their economy after 1950s?

2. What are the main difference between AIIB, ADB and World Bank. According to the Infrastructure development in Asia, do you think AIIB can be a main competitor to the ADB and World Bank? Explain it with various data.

Answer 1

1.

Japanese Banking System is pretty much the same as that of any other industrialized economy. It has commercial banks, financial institutions, securities market and mutual funds. Bank of Japan is the apex bank of the country.

In 1950s and 1960s, Bank of Tokyo took care of the economy’s foreign exchange transactions and reserves. Long Term Credit Banks also came into existence during this era which, instead of accepting public deposits, raised funds through issuing debentures. They were mainly concerned with lending long term loans to ‘keiretsu’.

Trust Banks combine the work of commercial and long term credit banks. They manage portfolios and issue negotiable loan trust certificates. In 1990, five of the world’s largest banks were identified to be Japanese banks.

But slowly, the scenario changed. The banks started lending to small firms in huge amounts without verifying their creditability. This eventually bulked up their book debts. The large customers of the bank started looking at capital markets, which were outperforming the core banking system at that time, as the potential place for raising funds. Collectively all this resulted in the profits of the banking industry getting doomed. Japan became a ‘bubble economy’.

In 2000s, the government used measures like infusion of capital into the banking system, consolidation of banks etc as the recourse to a sustained economy.

2.

• AIIB stands for Asian Infrastructure Investment Bank. It is different from the Asian Development Bank and World bank in the sense that it has mainly funded the Asian countries for infrastructure development. The ADB and World bank have, over all these years, focused primarily on addressing issues like food security, poverty eradication, gender equality and regional cooperation.
• ADB is closely modeled on World Bank, with its main focus on funding the Asian Countries. The vote sharing in the ADB is based on the member nations’ respective capital contribution.
• While ADB (headquartered at Phillippines, Manila) is dominated majorly by USA and Japan, AIIB was formed by China and is headquartered at Beijing, China.

AIIB started its business in early 2016 with 57 members and is already authorized to lend up to $250 billion. 13 more countries including Canada, Ireland and Ethiopia have recently joined. With its modern day evolved modus operandi and an aggressive agenda of global reach, it surely can compete with the likes of World Bank in no time.