Foreign Bank Lending and Bond Underwriting in Japan During the Lost Decade

FRB of San Francisco Working Paper No. 2006-45

37 Pages Posted: 17 Aug 2007

See all articles by Jose A. Lopez

Jose A. Lopez

Federal Reserve Bank of San Francisco

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department

Date Written: November 2006

Abstract

We examine foreign intermediation activity in Japan during the so-called "lost decade" of the 1990s, contrasting the behavior of lending by foreign commercial banks and underwriting activity by foreign investment banks over that period. Foreign bank lending is shown to be sensitive to domestic Japanese conditions, particularly Japanese interest rates, more so than their domestic Japanese bank counterparts. During the 1990s, foreign bank lending in Japan fell, both in overall numbers and as a share of total lending. However, there was marked growth in foreign underwriting activity in the international yen-denominated bond sector. A key factor in the disparity between these activities is their different clienteles: While foreign banks in Japan lent primarily to domestic borrowers, international yen-denominated bond issuers were primarily foreign entities with yen funding needs or opportunities for profitable swaps. Indeed, low interest rates that discouraged lending activity in Japan by foreign banks directly encouraged foreign underwriting activity tied to the so-called "carry trades." Regulatory reforms, particularly the "Big Bang" reforms of the 1990s, also play a large role in the growth of foreign underwriting activity over our sample period.

Keywords: Foreign banking, underwriting, samurai bonds

JEL Classification: F34, G21, G24

Suggested Citation

Lopez, Jose Antonio and Spiegel, Mark M., Foreign Bank Lending and Bond Underwriting in Japan During the Lost Decade (November 2006). FRB of San Francisco Working Paper No. 2006-45. Available at SSRN: https://ssrn.com/abstract=1006837 or http://dx.doi.org/10.2139/ssrn.1006837

Jose Antonio Lopez (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-977-3894 (Phone)
415-974-2168 (Fax)

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3184 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economics/economists/mspiegel.html

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