What kinds of credit associations favour introducing new financial technology?

Abstract

Since 2003, the Financial Services Agency (FSA) has set relationship banking enhancement program as an important strategic task to improve the functions of regional financial institutions. In this enhancement program, the FSA recommended that regional financial institutions introduce new financial products such as collateralized loan obligations (CLOs) and collateralized bond obligations (CBOs). However, this was left up to each institution's discretion rather than being mandatory. This resulted in a large difference in the introduction of new products. Therefore, this article has analysed what kinds of credit associations favourably increased the use of new financial products. As a result, it has been confirmed that the larger their lending shares and management scale and the better their business conditions are, the more positively they work on the introduction of new products. Considering the fact that relationships between financial institutions and enterprises tend to be fixed in Japan, this means that medium and small enterprises will have restrictions on the financial products they can use depending on the situation of their main banks.

Acknowledgements

This research is financially supported by the Grant-in-Aid from Japan Society for the Promotion of Science (Kakenhi).

Notes

¹Based on questionnaire-type research by the US Federal Reserve, Mach and Wolken (2006) analysed the level of usage of financial products by medium to small enterprises in the USA. However, analysis for detailed categorization of loan products has not been performed. Yamori (2009) analysed the utilization of Japanese small businesses based on his own questioner result.

²Spiegel and Yamori (2006) analysed optional disclosure of bad debt of credit associations and it was discovered that disadvantageous information tends not to be disclosed.

³Boot (2000) reports that the impact that the level of competition in loan market gives on relationship banking is not obvious because of other conflicting factors.

⁴Correlation coefficient between explanation variables was the highest between loaned money share in each prefecture (MSLPP) and logarithm of total assets (LAST) for both estimate models. However, including factors between other variables, all correlation coefficients were absolute values below 0.5, so it was concluded that there is no problem of multicollinearity.

⁵Multinominal logit regression was also performed to verify the differences among characteristics in each item; however, because of factors such as extreme reduction in the number of samples, we could not achieve satisfactory analysis result.