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Author: | Sheard, P. |
Title: | Reciprocal delegated monitoring in the Japanese main bank system |
Journal: | Journal of the Japanese and International Economies
1994 : MAR, VOL. 8:1, p. 1-21 |
Index terms: | JAPAN BANKS DELEGATION |
Language: | eng |
Abstract: | This paper characterizes the Japanese main bank system as an arrangement for facilitating reciprocal delegation of monitoring among a set of banks. Reciprocal delegated monitoring allows banks and firms to remain diversified while ensuring that monitoring takes place without duplication, but when monitoring is unobservable, it induces a principal-agent relationship between non-main banks and the main bank. The convention that the main bank bears a disproportionately large share of bank losses is viewed as being part of a contractual arrangement among banks designed to give the main bank adequate incentives to carry out monitoring on behalf of lending banks as a whole. |
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