ABSTRACT
During the late 1980s, Japanese banks substantially increased their global presence. In part, the expansion was undertaken to help service Japanese companies that were increasingly involved in foreign direct investment. However, this expansion also can be attributed to Japan’s position as the world’s preeminent source of surplus capital. And, because Japanese banks faced only limited foreign competition for domestic deposits, Japan’s high saving rate provided them with large and growing volumes of low-cost deposits. The substantial rise in Japanese stock prices raised the value of the extensive crossholdings of equity shares by Japanese banks, providing the increase in the bank capital base that supported their dramatic asset growth. This expansion catapulted many Japanese banks into the ranks of the largest banking organizations in the world, with Japanese banks accounting for 13 of the 15 largest banks in 1994. While Japanese banks expanded quite dramatically worldwide, much of their rapid growth initially occurred outside of Southeast Asia.1 The focus was on the largest trading partners, such as the United States.2 Another motivation for the surge in foreign lending by Japanese banks was to avoid Bank of Japan window guidance (Frankel and Morgan, 1992).
