The search for financial stability in Japan after the war
Japan's financial markets after World War II were marked by two goals. The first was the goal of the occupation authorities, i.e., the United States, who wanted to dismantle the financial/commercial combines which they thought lead to Japan's nationalistic, militaristic behavior. The other goal of both the Japanese and occupation authorities was the desire to create a financially stable environment where long-term investment could take place and thus rebuild the Japanese economy.
Towards the first goal, the occupation authorities tried to break up the old, giant financial conglomerates known as zaibatsu. The zaibatsu, which have transformed into today's looser organizations known as keiretsu, were large holding companies that controlled raw material, production and financial interests. Some of the old zaibatsu names included Sumitomo, Mitsubishi and Mitsui.
The occupation forces attempted to eliminate the zaibatsu by outlawing holding companies and limiting stock ownership by banks. The occupation authorities also tried to weaken the banks of each zaibatsu by limiting the scope of business of the banks. They would do this by strengthening the securities firms that had no ties to the zaibatsu. The US hoped an adversarial "divide and conquer" strategy that separated the banks and the securities companies would help prevent a concentration of power. Thus Article 65 of the Securities and Exchange Law of 1947 arose. This article, modeled after the Glass-Steagall Act of the US, stated that banks could not enter the securities business, and securities firms could not enter the banking business.
Although Article 65 helped promote the securities firms by giving them protection from the banks, Japan was and still is dominated by its banks. Thus, Japanese officials focused on finding ways to divide the banking industry in a way to reduce cutthroat competition and encourage long-term investment for the nation's reconstruction.