Trust banking and insurance in Japan
The banking industry was further segmented into trust banking. The trust banks, many of which were created from bank trust departments, also provide long-term funds to corporations. Trust banks were allowed to take funds, like pensions, in trust. These funds were then either invested in equity trust accounts or loaned out. Trust banks are moderately large, representing about 15 percent of Japan's banking assets.
Other providers of funds were also nurtured in a protective arrangement. For example, life insurance companies also became providers of long-term funds. Because mortality rates are very predictable, life insurance companies can extend the funds of their policy holders to corporations on a long-term basis. By investing in stock, Japanese life insurers became the second largest equity holders in Japan, and they also extended long-term loans to corporations.
Because casualty insurance is a riskier business than life insurance, Japanese casualty insurers can only lend surplus funds on a short-term basis. Realizing the difference between casualty and life insurance, Japanese officials segmented the two so that they could not compete with each other. In both life and casualty insurance, in the interest of financial stability, government officials winked at de facto insurance cartels that were set up to ensure that the least efficient insurers could still make a profit at the industry-wide approved rates.