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| Liberalization of Securities Transaction Fees |
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Financial liberalization, which progressed in the 1980s, played the role of vitalizing the securities industry. First, as budget deficits expanded, it no longer became possible for the government to continue regulating interest rates.
In the government bond issue market, the Japanese government sold bonds at a high price (i.e. government bonds with low coupon rates) to financial institutions through the regulations imposed on the market. Meanwhile, there was a precipitous fall in bond prices (rise in interest rates) in the trading market - where liberalization of interest rates had advanced earlier - caused by the massive issuance of government bonds. This meant that there would be loss on sales if, out of cash flow necessities, a financial institution tried to sell, in the trading market, the government bonds which it had been "forced" to buy in the issue market. For this reason, they started to become reluctant to underwrite (purchase) government bonds at its high price in the issue market. Such problems had not arisen when the amount of government issues had been low because financial institutions had held on to them until maturity.
Such reluctance on behalf of financial institutions to purchase government bonds made it difficult for the government to issue low coupons in the issue market, leading to the advance of the liberalization of interest rates. As a result, deregulated interest rate products such as medium-term government securities funds appeared, and they became a medium to promote the liberalization of deposit interest rates.
The liberalization of capital market issuances has kept pace with the liberalization of interest rates. Furthermore, individuals, who were maturing as investors, were no longer willing to settle for low interest rates or low returns, and they began seeking higher returns on their investments. A problem that then arose was that brokerage commissions on the buying and selling of securities were high. In the West, the liberalization of trading commissions had progressed since the 1970s. The liberalization of securities brokerage commissions was also implemented through Japan's Big Bang financial reforms. The liberalization of trading commissions greatly changed the business environment surrounding securities companies. |
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| The Security Industry's Oligopolistic Framework Crumbles |
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The oligopolistic framework of four securities companies began to crumble from underfoot as if to keep pace with the advance of such liberalizations.
During the 1980s, securities companies savored the stock market boom of the bubble economy. Backed by the economic boom, securities companies made excessive investments in systems, such as computers. However, the bubble burst in the early '90s, share prices took a nosedive, and the volume of trading on the stock market fell rapidly. Securities companies, which had made excessive investments, were in serious financial trouble. |
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| In 1997, Yamaichi Securities Co., Ltd., which had been one of the four oligopolists, liquidated voluntarily in de facto bankruptcy. In the case of Yamaichi Securities, the downfall was caused by a cover-up of massive losses resulting from illegal "tobashi" practices, or compensation of investor losses. Sanyo Securities Co., Ltd., a quasi-major securities company that had made excessive capital investments, also liquidated in 1997. Yamaichi Securities had faced a similar financial crisis back in 1965, but it had survived through special loans extended by the Bank of Japan. It was impossible, however, to bailout the company through conventional methods under the new circumstances that had been created in the 1980s through financial liberalization. Yamaichi Securities, which had been one of the biggest securities companies in Japan, had no choice but to liquidate. |
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