Evolutionary History and Structural Patterns of Investment Banks in Japan

Unlike those of the United Kingdom and the United States, investment banks in Japan came into being in their own way. Investment banks are called securities companies in Japan because their creation and development directly depends on the creation and development of the Japanese securities market. After the Meiji Reform, Japan started establishing its securities market, whereupon securities companies appeared. However, capital was largely concentrated in the hands of financial oligarchs, and the securities market suffered a severe shortage of capital. As a result, securities companies were not well-developed. At that time, shares issued by large enterprises tended to be absorbed internally by the same financial group. The enterprise bond underwriting business was almost completely monopolized by banks. The business scope of securities companies was limited to stock trading brokerage. After the Second World War, the oligarchs disintegrated, freeing up a large number of shares and corporate bonds. Securities trading experienced some substantial changes and securities companies took on a brand new look. They started engaging in the marketing and selling business.

Yet another event that greatly promoted the development of Japanese securities companies involved the promulgation of the Securities Trading Law in 1948 and the establishment of the mixed operation model in the banking industry. Banks are not allowed to engage in intermediation for securities other than government bonds, local treasury bonds, and government-guaranteed bonds. It is stipulated that the majority of securities business should be undertaken by securities companies, which play a leading role in the securities market. This greatly boosted the securities market and promoted the development of securities companies.