Cooperation, Conflict, and Convergence in Japanese Finance: Evidence from the 'Jusen' Problem

Washington University School of Law Working Paper 97-3-1

Posted: 12 Sep 1997

See all articles by Curtis J. Milhaupt

Curtis J. Milhaupt

Stanford Law School; European Corporate Governance Institute

Geoffrey P. Miller

New York University School of Law

Date Written: March 1997


This paper examines contemporary Japanese financial regulation through the prism of the catastrophic failure of Japan's home mortgage lending ("jusen") companies. The jusen problem is a matter of considerable practical importance and theoretical interest. Directly at stake is as much as $130 billion in unrecoverable loans held by virtually every sector of the Japanese financial industry. On a theoretical level, the creation and resolution of the jusen problem is one of the most striking examples of regulatory failure, intense political and bureaucratic activity, strategic interest group bargaining, and large-scale dispute resolution in Japanese history. We model Japanese regulatory interaction as a network of interrelated insitutions that facilitate coordinated public-private decisionmaking -- a system of financial governance we label a "regulatory cartel." As developed more fully in the paper, a regulatory cartel is an interlinked system for cooperative decisionmaking and enforcement among the public and private sectors, which operates according to reasonably well understood procedural and substantive rules, and which has as its purpose and effect the control of entry, production, and price, not only within specified industries but also across industrial sectors. The paper explains the jusen problem as an outgrowth of the incentives generated by this regulatory cartel, providing an account of the factors that led to this financial debacle and documenting the extraordinary steps taken to resolve the problem. The paper concludes that patterns of existing Japanese regulation are unsustainable, because the regulatory cartel does not function well in periods of low economic growth or where actors must divide up "bads" such as economic losses and political opprobrium. The jusen matter thus illustrates how longstanding patterns of regulatory interaction in Japan are changing in response to changes in the economic and political environments.

JEL Classification: G28

Suggested Citation

Milhaupt, Curtis J. and Miller, Geoffrey P., Cooperation, Conflict, and Convergence in Japanese Finance: Evidence from the 'Jusen' Problem (March 1997). Washington University School of Law Working Paper 97-3-1, Available at SSRN:

Curtis J. Milhaupt (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Geoffrey P. Miller

New York University School of Law ( email )

Center for the Study of Central Banks
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6329 (Phone)
212-995-4590 (Fax)

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