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This article presents several research papers related to banks and asset markets during war and depression. "The Great Banks' Depression: Deposit Withdrawals in the German Crisis of 1931," uses monthly balance-sheet data of all major German credit banks, and further analyze deposit withdrawals and bank failures in the German banking and currency crisis of 1931. "International Financial Crisis Contagion in the Interwar Period," examines international financial markets and the links between them using a newly hand-collected data set for more than 300 company stocks, encompassing weekly equity-market observations for 13 countries.

The article presents abstracts of research related to economic history. These include "Ecological Frontiers on the Grasslands of Kansas: Changes in Farm Scale and Crop Diversity," "Institutional Innovation and the Creation of Liquid Financial Markets: The Case of the American Over-the-Counter Market," and "Geographic and Regulatory Frontiers in Commercial Banking: Private Banking in the United States, Scotland and Germany in Early Industrialization."

Explores how the banks chartered by states in the United States (U.S.) provide a source of flexibility in state public finance following the decision of the U.S. Constitution to remove the states' power to issue paper money. Role of investment earnings and tax revenues derived from banks in state public finance; Importance of state-bank relationships to public finance.

Empirical studies and much marketplace opinion have it that the spread between private money market rates and the U.S. Treasury bill rate of comparable maturity is due to differential default risk, liquidity risk, and relative supplies. This paper presents an argument and empirical evidence that the bulk of the systematic and medium-term differential between privates rates---in this case, domestic CDs, commercial paper, bankers' acceptances, and Eurodollar CDs---and the T-bill rate is due to the exemption of interest on Treasury securities from state and local taxation. In the case of Eurodollar CDs, the additional and major systematic factor explaining the spread (visa vis T-bills) is the exemption of Eurodollar CDs from the Federal Reserve's "tax" via reserve requirements. An empirical section confirms the role of standard default risk, liquidity risk, and market "absorption" variables in determining short-term deviations from tax-adjusted parity. The tax-adjusted parity condition, however, remains the major systematic and medium-term determinant---certainly more important than has been suggested previously in the literature. [ABSTRACT FROM AUTHOR]

Comments on an article about private banking in the United States. Discussion on the work of economist Herman Kross; Details of economic history; Perception on the role of private bankers.

Comments on articles about economic and business history in the United States. Details of private banking; Views on capital accumulation.

This article presents several research papers related to economic history. "Educational Disparity in Pakistan, 1947-1971." Using time-series data, this paper documents the regional divide in educational facilities between East Pakistan (now Bangladesh) and West Pakistan, 1947-1971. "Management Structure and Bank Performance: Empirical Examination of the Chinese Banking Industry," investigates the relationship between bank performance and management structure in Shanghai between 1912 and 1937. The data come from Shanghai's Municipal Archives and the Center for Research of Chinese Business History.

This paper examines the effect of commercial bank entry on underwriting spreads for IPOs, SEOs, and debt issues using a long time series that spans 30 years, from 1975 to 2004. We find that, on average, commercial banks charge lower spreads of approximately 72 basis points for IPOs, 43 basis points for SEOs, and 14 basis points for debt over the entire sample period. The economic impact of commercial banks on lowering underwriting spreads is most significant when commercial banks were allowed to enter via Section 20 subsidiaries but persists beyond. Commercial bank entry into underwriting appears to have a procompetitive effect that lasts many years after their initial entry. [ABSTRACT FROM AUTHOR]

Presents an abstract of a research paper entitled `Bank-Firm Relationships and the Development of Interlocking Directorates in the Kaiserreich,' by Caroline Fohlin, presented at the annual meeting of the Economic History Association.

This paper surveys the recent academic literature on the economics of cross-border regulatory cooperation as well as recent policy developments in this area. While institutional arrangements of cross-border regulatory cooperation used to focus on day-to-day supervisory tasks, the crisis has given an impetus to a focus on cooperation at the bank resolution stage, with an array of different cooperation forms. A growing theoretical literature has documented different externalities arising from national supervision of cross-border banks, while empirical evidence has been relatively scarce. The paper concludes with a forward looking agenda both for policy reform and academic research in this area. [ABSTRACT FROM AUTHOR]

Argues that changes in the regulatory environment help greatly to explain the movements in circulation and increased bank entry. The reduction in circulation can be traced to an 1882 change in the law that allowed banks to divest their bond holdings; A model linking regulation and national bank note issue; The market for real paper money; Empirical tests; Conclusion.

The paper discusses the effects on growth of a systemic banking crisis as a result of debt defaults. These effects will come from the impact of credit rationing on consumption and credit and from the impacts of a significant rise in the spread between lending and borrowing rates for both producers and consumers. The analysis uses the dynamic stochastic general equilibrium version of the National Institute global model. The paper also investigates the impact on output of a permanent, regulation induced, rise in margins in the financial sector, taking into account the impacts of regulation on equity market valuations. [ABSTRACT FROM AUTHOR]

The current financial crisis has raised queries about the adequacy of the present regulatory regime. Whilst the immediate priority may be to plug the obvious holes in the system, there are some long-term generic problems with almost any system of financial regulation. This paper explores one such concern, i.e. the boundary problem. This arises because effective regulation, one that actually bites, is likely to penalise those within the regulated sector, relative to those just outside, causing substitution flows towards the unregulated. This boundary problem impacts on many proposals, such as 'narrow banking' and my own, with Avinash Persaud, for state and time-varying capital adequacy requirements. The question of how and where to set the boundary is considered. Such boundaries will always be criticised as leading to disintermediation, competitive inequality (no level-playing-field), inefficiency and higher spreads and borrowing rates; and such criticisms will be valid up to a point. The paper ends by discussing how best to respond. [ABSTRACT FROM AUTHOR]

The financial crisis that started in August 2008 has reached a climax in the autumn of 2008 with a wave of bank nationalisations across North America and Europe. Although banking crises are not uncommon, this is the largest since 1929-33. This paper discusses the build-up to the crisis, looking at the role of low real interest rates in stimulating an asset price bubble. That bubble was stocked by financial innovation and increases in lending. New financial products were not stress tested and have failed in the downturn. After discussing the bubbles we look at the collapse of the complex asset structure, and then put the crisis in the context of the literature. The paper concludes with a discussion of policy implications of the crisis, and advocates a significant improvement in the regulatory structure. [ABSTRACT FROM AUTHOR]

In this paper the co-responsibility of the North for the development of the South, the chance of an authentic development and Rawls's maximin rule are indicated as the ethical perspectives from which the financial integration of developing countries will be evaluated. It follows a brief economic analysis of possible problems of high inflows of portfolio investments for developing countries. They become more vulnerable to financial and monetary crises and their domestic banking systems are weakened by a higher risk of devaluation. This will lead to an outline of the goals for reshaping the financial integration: among others limitation of capital inflows, strengthening of the domestic banking system and further development of the country's particular economic style. Finally some regulations of external financial relations and the proposal of a cooperative monetary arrangement between the South and the North are discussed as possible measures to improve this integration. [ABSTRACT FROM AUTHOR]

The paper examines the determinants of contract terms on bank revolving credit agreements (revolvers) of medium/large publicly traded companies. We model the duration (maturity), secured status, and pricing decisions within a simultaneous decision framework, thereby overcoming the biased and inconsistent estimates in prior single equation studies of debt contract terms. We find strong interrelationships between contract terms with significant bi-directional relationships between duration and secured status and between the all-in-spread and commitment fees and a unidirectional relationship from both duration and secured status to all-in-spread. We also illustrate how several single equation studies of contract terms draw incorrect conclusions because of their (inappropriate) assumption that other contract terms and leverage were exogenous. Finally, our results support the hypothesis that the setting of contract terms plays an important role in alleviating contracting problems. [ABSTRACT FROM AUTHOR]

This paper reviews the market failures that may justify the need for liquidity regulation, assesses whether liquidity regulation is a necessary complement to Lender of Last Resort (LOLR) policies, capital regulation and prompt corrective action, surveys the available evidence on the net benefits of liquidity regulation, and concludes by outlining research directions useful to improve bank regulation design. [ABSTRACT FROM AUTHOR]

In all the criticisms that have shadowed the financial industry in recent years, the burden seems to be, that the reckless (as opposed to malicious) bankers too often took money of which they were the appointed stewards, and used it for speculation, especially in junk bonds. As Shaheen Borna and James Lowry argue in their "Gambling and Speculation" (the only article on gambling that I was able to raise on my computer) business speculation is probably wrong, since it is very like gambling, which everyone knows is wrong. But why is gambling wrong? If we, as the ethicists of business, are to adopt an uncharacteristically judgmental posture toward the most venerable American institutions, occupying the tallest and closest of American buildings, by calling their residents "gamblers," then surely we ought to be able to provide an account of the blameworthiness of gambling itself. That, at any rate, is the challenge I set myself for this paper. [ABSTRACT FROM AUTHOR]

This paper examines the associations between the adoption of a short-term compensation contract and changes in executive expenditure decisions for a sample of major commercial banks. In particular, the analysis concentrates primarily on changes in executive expenditures on discretionary items (expenditures preferred more by the manager than by shareholders). The results indicate that the adoption of a short-term compensation plan is associated with modest decreases in the ratio of discretionary expenditures to current operating revenue and the ratio of discretionary expenditures to managerial compensation for banks making the contractual change. These results are consistent with the conclusion that the mix of discretionary expenditures and effort selected by the manager changes with the adoption of a short-term compensation contract. [ABSTRACT FROM AUTHOR]

The article reports on the pricing of bank services through analysis of the market for loan commitments as well as the pricing of other bank services. Also, the role of compensating balance requirements associated with loan commitments is looked at. The bank, when providing a loan commitment, specifies an amount that it will lend up to and gives a fixed rate or an interest rate which is tied to the prime rate with a predetermined formula. They then charge a price or premium which is a reflection of the estimated expected cost of providing that loan commitment which relates to the customer's credit quality and the timing of the borrowing.

This paper has developed a model of hank margins or spreads in which tile bank is viewed as a risk-averse dealer. It was demonstrated that an interest spread or margin would always exist, and that this was the result of transactions uncertainty faced by the bank. Moreover, it was shown that this pure spread depended on four factors: the degree of managerial risk aversion; the size of transactions undertaken by the bank; bank market structure; and the variance of interest rates. The model implied that liability and asset structures had to he analyzed together since they were directly interrelated through transactions uncertainty. It was shown that because of this transactions uncertainty, hedging behavior was perfectly rational within an expected utility maximizing framework. Extending the model from a structure with one kind of loan and deposit to loans and deposits with many maturities should lead to further interesting insights into margin determination especially as "portfolio" effects may become apparent. In the empirical section, tests were undertaken using data from a sample of U.S. commercial banks. It was shown, given certain reasonable assumptions, that tho pure spread could be empirically identified. It was found that this spread was positively and significantly related to the variance in the tale on Sends as predicted by the theoretical model. It was also inferred that the asset (liability) maturity, or duration, of major concern to this group of banks was one year. When the sample was split into two subgroups (measured by asset size), it was found that the smaller banks had an average transactions spread of approximately one-third of one percent more than the larger banks. While this difference was small, it appeared to be statistically significant. Statistical tests were then conducted to see which factors explained this difference. It was tentatively concluded that the difference was largely due to market structure factors which allowed the... [ABSTRACT FROM AUTHOR]

The article presents an econometric analysis of the stochastic processes involved within assessing interest rate risk within bank capital management. Existing structures of bank management are described, pointing out the inevitable presence of interest rate spread risk. Mathematical analysis within the efficient market theory paradigm is presented in order to determine variances in short and long-rate interactions of bank interest rates and improve interest forecasting methods. Comparisons are also given between the presented model and alternative forecasting processes such as the random walk model.

The article focuses on the trend of large banks failing, primarily in greater numbers since 1965, 30 years after the establishment of the Federal Deposit Insurance Corporation (FDIC). The widespread failure of large banks is a result of trends in the U.S. banking system since the early 1960s. Many banks began to strive for a rapid increase in assets, deposits, and income. The situation grew stronger during the tenure of James Saxson as Comptroller of the Currency. This paper attempts to examine the problem of large bank failure and to determine whether this problem needs to modify bank supervision and deposit insurance methods. Examined are the policies and procedures regarding small bank failure. The last section discusses possible solutions to this crisis.

Risk-sensitive capital requirements, such as those established in Basel 2/3, and loan loss provisions based on incurred losses or on short-horizon expected losses, increase procyclicality in the banking system. They could, therefore, contribute to fuelling credit bubbles in good times, as rising risks are not properly covered either with capital or provisions, and credit crunches in bad times, as requirements are sharply increased to compensate for the former undercapitalisation and under-provisioning, and banks respond by cutting credit to households and firms. This paper shows that the procyclicality of current and envisaged capital requirements and loan loss provisions is a serious concern. But, at the same time, it can be dealt with using countercyclical macroprudential tools, first, by smoothing minimum capital requirements using a very simple and intuitive formula based on GDP growth and, secondly, by using forward-looking provisions such as the Spanish dynamic provisions, a working macroprudential mechanism for more than a decade and a full lending cycle. [ABSTRACT FROM AUTHOR]

‘Too big to fail’ traditionally refers to a bank that is perceived to generate unacceptable risk to the banking system and indirectly to the economy as a whole if it were to default and be unable to fulfill its obligations. Such a bank generally has substantial liabilities to other banks through the payment system and other financial links, which can be sources of ‘contagion’ if a bank fails. The main objectives in this paper are to identify the different dimensions of too big to fail and evaluate various proposed reforms for dealing with this problem. In addition, we document the various dimensions of size and complexity, which may contribute to or reduce a bank's systemic risk. Furthermore, we provide an assessment of economic and political factors shaping the future of too big to fail. [ABSTRACT FROM AUTHOR]

Using a large loan sample from 1990 to 2006, we examine why firms form new banking relationships. Small public firms that do not have existing relationships with large banks are more likely to form new banking relationships. On average, firms obtain higher loan amounts when they form new banking relationships, while small firms also experience an increase in sales growth, capital expenditure, leverage, analyst coverage, and public debt issuance subsequently. Our findings suggest that firms form new banking relationships to expand their access to credit and capital market services, and highlight an important cost of exclusive banking relationships. [ABSTRACT FROM PUBLISHER]

In 1686 the leadership of Massachusetts became involved in the first operational bank scheme in America. In 1688 this note-issuing bank was mysteriously aborted at an advanced stage. I suggest a new, simple explanation for the bank's demise. The bank's notes were supposed to be backed mostly by private land in Massachusetts, but a new royal governor invalidated all the land titles. This episode demonstrates the importance of clearly defined and enforced property rights for the development of financial institutions. [ABSTRACT FROM PUBLISHER]

The article explores how bank regulators in the United States can pursue optimal policies to regulate bank capital under the existing banking laws. The authors use existing market models, the linear effect of leverage on beta, and approximation theories to create a "bench mark" model to be used by regulators to determine strategies about specific bank situations. The article also presents a discussion of the funding of U.S. bank regulatory agencies such as the Federal Deposit Insurance Corporation (FDIC), policies regarding both assets and capital, and matters of scale regarding the possibility of bank failures.

The objective of this study is to determine the impact of money market conditions and a bank's regulatory environment on the interest rates banks charge on their loans. This is accomplished through the analysis of the effect of these impacts, in a multiperiod framework, on a bank's optimal investment and borrowing decisions and the minimum required rate of return on its asset portfolio. [ABSTRACT FROM AUTHOR]

The article focuses on a normative approach to bank capital adequacy. This article provides a model that avoids the reliance on arbitrary cut-off ratios. Instead, the model utilizes finance theory and formal probabilistic considerations in order to provide a testable theory of bank risk and to derive a comprehensive expression for bank capital adequacy. The article focuses on the sensitivity of the bank's sources and uses of funds to several different factors as the major determinant of capital adequacy.

The article addresses the question of whether or not those states with branch banking have more banking offices per person that those states with unit banks. A study is performed using cluster analysis in metropolitan areas. The article discusses the methodology, the evidence from the clusters, and conclusions and policy implications. The analysis found that, in general, there are more banks per person in branch banking states than in unit banking states. The author acknowledges that issues other than convenience are at play here, and that a study of rural areas may prove different results. The significance of this study in light of U.S. Senate Banking Committee hearings and public policy over optimum banking structures are discussed.

This paper explores the impact of internationalization on the financial services policy subsystem in Canada. It uses subsystem adjustment as a concept to bring some analytical clarity to how exogenous factors like globalization and international crises may impact existing policy regimes. Based on examination of globalization-induced banking deregulation (1987?1991) and the current crisis of securitized banking, the paper argues that the strength of this approach is that it integrates endogenous effects of the existing subsystem in explaining policy changes in response to what are normally treated as exogenous shocks. Careful effort needs to be made to differentiate the processes of external systemic perturbations from subsystem spillovers as these two processes of adjustment and policy change can lead to different policy making dynamics over the long term. [ABSTRACT FROM AUTHOR]

The article presents a comment on the paper on "The German Twin Crisis of 1931" by Isabel Schnabel, published in the current issue of "The Journal of Economic History." It is lovely to see attention to this critical episode in the Great Depression. Schnabel repeats the familiar argument that bank behavior was a primary cause of the German crisis. The crisis clearly began as a currency crisis, not a banking crisis. The purpose of this comment is to examine the data that Schnabel's article brings to bear on this question and evaluate the evidence it presents in support of its hypothesis.

With passage of the Federal Reserve Act in 1913, the institutional structure necessary to support an American market for bankers' acceptances was created. This article examines the development of the secondary market for bankers' acceptances during its first 20 years. It provides evidence that discount market liquidity increased dramatically during the 1920s and helped the dollar acceptance challenge the sterling bill as an important source of trade finance around the world. The Federal Reserve Banks played a key role by reducing the risk borne by private dealers and propelling the market to a high-liquidity equilibrium. [ABSTRACT FROM AUTHOR]

Traces the history of Swedish commercial banking from 1656 until World War I. Relationships between economic growth and banking; Characteristics of the banking industry in the country.

Financial supervision focuses on the aggregate (macroprudential) in addition to the individual (microprudential). But an agreed framework for measuring and addressing financial imbalances is lacking. We propose a holistic approach for the financial system as a whole, beyond banking. Building on our model of financial amplification, the financial cycle is the key variable for measuring financial imbalances. The cycle can be curbed by leverage restrictions that might vary across countries. We make concrete policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent. [ABSTRACT FROM AUTHOR]

The article presents a reply by the author of the paper "The German Twin Crisis of 1931" to a comment on it by Thomas Ferguson and Peter Temin. He says that the article was criticized for only paying lip service to the notion of a twin crisis while providing a story of a pure banking crisis. In fact it was never claimed that the crisis was a pure banking crisis. The question is whether and to what extent books contributed to the crisis. It is argued that weaknesses in the banking sector existed, which interacted with the currency problems in numerous ways.

In late 1832, a small religious sect, the Children of Peace, completed their second place of worship, a temple, in the village of Hope in the sparsely settled northern reaches of Toronto's rural hinterland. Called by a vision to “ornament the Christian Church with all the glory of Israel,” the Children of Peace rebuilt Solomon's temple as the seat of their New Jerusalem (Schrauwers 1993; 2009). As William Lyon Mackenzie, newspaper editor, mayor of Toronto, and member of the elected assembly for the riding enthused, this three-tiered building was “calculated to inspire the beholder with astonishment; its dimensions—its architecture—its situation—are all so extraordinary” (CA 18 Sept. 1828). The Children of Peace, having fled a cruel and uncaring English pharaoh, viewed themselves as the new Israelites lost in the wilderness of Upper Canada; here they would end sectarianism and rebuild God's kingdom on the principle of charity. It is important to stress both the symbolism and the intended function of this, their second church; the highly symbolic temple was intended solely for their monthly alms sacrifice for the poor “Israelite fashion.” The Charity Fund they collected there was utilized for “the relief of the poor of the contributors, and others” (Sharon Temple n.d.: 11), as well as the support of a shelter for the homeless (Schrauwers 2009: 47). Targeted recipients included victims of a cholera epidemic in Toronto and starving pioneer settlers in the outlying districts (CA 23 Aug. 1832; Constitution 4 May 1837). [ABSTRACT FROM PUBLISHER]

The article presents a paper which examines the organizational culture of the World Bank, and explains why it has not assumed a human rights policy. It states that the institution has assumed several environmental and social policies and works on issues. However, it says that the bank has not established an operational policy on human rights. Hence, the marginality of human rights in the bank's policy contradicts its public speeches official reports wherein they have discussed and supported human rights. It tells that the bank does not maintain complete and consistent access on human rights policy and operational levels. Hence, due to the its existing policies, it justifies that the bank lacks three provisions including a staff policy to reduce the effect of its projects on human rights.

The 2007-8 banking crisis in the advanced economies has exposed deficiencies in risk management and prudential regulation approaches that rely too heavily on mechanical, albeit sophisticated, risk management models. These have aggravated private and economic losses. While fiscal costs were at first limited, it remains to be seen to what extent the taxpayer will be protected. Policymakers and bankers need to recognise the limitations of rules-based regulation and restore a more discretionary and holistic approach to risk management. [ABSTRACT FROM AUTHOR]

Although China has had difficulty improving the performance of its banks and stock markets, it has struggled even more to develop a credit rating industry. Credit rating agencies (CRA), which provide bond ratings, are vital to financial markets in advanced capitalist countries, but China's credit rating companies are weak and have had little influence over the behaviour of those who issue or invest in bonds. Some argue that CRAs gain authority through their strong reputation in the eyes of market participants, but the experience of rating agencies in China supports evidence from elsewhere that their private authority is largely dependent on government mandate, a benefit China's CRAs have only recently begun to enjoy. Many private actors, from trade associations to charity groups, are struggling to gain public influence in China, but credit rating agencies may be the best barometer to measure the Chinese government's general stance towards private authority. [ABSTRACT FROM AUTHOR]

Concerns over aid effectiveness have led to calls for greater accountability in international development aid. This article examines the state of accountability within and between international development agencies: aid NGOs, the international financial institutions, and government aid ministries. The investigation finds that there is very little accountability in these agencies, and that the accountability that there is often works against poverty relief. Increasing accountability, however, is not always the solution: increased accountability may just amplify the complexities of development efforts. Only those reforms with real promise to make aid more effective in reducing poverty should be encouraged. One such proposal is set out here. [ABSTRACT FROM AUTHOR]

This paper addresses Paris barrier options, as introduced by G. Kentwell and J. Cornwall at Bankers Trust Australia in the mid-1990s, and their valuation, as developed by Chesnay, Jeanblanc-Picqué and Yor using the Laplace-transform approach. The notion of Paris barrier options is extended so that their valuation becomes possible at any point during their lifespan, and the pertinent Laplace transforms of Chesnay, Jeanblanc-Picqué and Yor are modified when necessary. [ABSTRACT FROM AUTHOR]

Presents a summary of the doctoral dissertation on the political economy of banking during the 1929 economic depression.

Comments on an article about the antebellum money market and the economic impact of the bank war, by M.E. Sushka. Structural change to the data; Theoretical specifications and estimation techniques employed that were inappropriate for the model.

Presents a comparative analysis of the banking policy of Germany and Japan in post World War II. Example of the best theoretical formulations on the effect of German banking on development; Effect of industrialization in both countries.

This paper describes the Danish mortgage system by comparing it with the UK mortgage system. The Danish mortgage system has attracted attention in the literature on the design of mortgage systems. It is a type of narrow banking model where mortgage loans are financed by specialised institutions that issue bonds with cash flows that match that of the mortgage loans. Thereby, the Danish mortgage system outsources many of the risks that are usually kept on the balance sheet of banks to bond investors. Measured in terms of four criteria, the Danish mortgage system performed better during the financial crisis than the UK mortgage system. However, both in Denmark and the UK, alignment of the mortgage and the pension systems could offer significant advantages. [ABSTRACT FROM AUTHOR]

We study a transitional economy where state-controlled banks make loan decisions based on noisy inside information on prospective borrowers, and may lend to avert unemployment and social instability. In China, poor financial performance and high managerial expenses increase the likelihood of obtaining a bank loan, and bank loan approval predicts poor subsequent borrower performance. Negative event study responses occur at bank loan announcements, particularly for borrowers measuring poorly on quality and creditworthiness, or for lenders or borrowers involved in litigation regarding loans. Our results highlight dilemmas in a state-led financial system and the local stock market’s sophistication in interpreting news. [ABSTRACT FROM PUBLISHER]

Japan's economy has stagnated since the bursting of the twin real estate and stock bubbles in 1990. Construction employment rose after the bubbles burst despite a real estate glut. Systemic corruption is delaying recovery. The key is the dango—Japan's system of bid rigging, which is pervasive in public construction. The firms rotate who will win the "competitive" bid. The bureaucrats leak the highest price bid that will be accepted in return for favors from the industry and lucrative sinecures when they retire (amakudari—"descent from heaven"). The ruling politicians (the "construction tribes") get kickbacks and ensure the adoption of enormous public construction programs. The result is that Japanese public and private capital flows are corruptly routed to uses that are not simply inefficient, but outright harmful to society. Pervasive corruption is the primary obstacle to Japanese economic (and environmental) health and political reform. [ABSTRACT FROM AUTHOR]

The informational opacity of small businesses makes them an interesting area for the study of banks' lending practices and procedures. We use data from a survey of small businesses to analyze the micro level differences in the loan approval processes of large and small banks. We provide evidence that large banks ($1 billion or more in assets) employ standard criteria obtained from financial statements in the loan decision process, whereas small banks rely to a greater extent on information about the character of the borrower. These cookie-cutter and character approaches are compatible with the incentives and environments facing large and small banks. [ABSTRACT FROM AUTHOR]