Public Banking in Germany and Japan's Fiscal Investment and Loan Program: A Comparison

The Japanese Fiscal Investment and Loan Progam (FILP) will be fundamentally changed in April 2001. We are comparing the pre- and post-reform Japanese system with the German system of policy-based finance and we have found that the German system is quite different. In the case of the Kreditanstalt für Wiederaufbau (KfW) and other German federal and state institutions, the loans are mainly made through private banks, while the Japanese government banks lend directly to companies or households. Our paper discusses the advantages and the disadvantages of these two systems. We also consider the guarantee systems, which supplement and substitute public sector loans, and it turned out that in Japan there are moral hazard problems within this framework.Apart from this we also look at the role of public financial institutions outside their role in policy-based lending and investment. Here our focus is on postal savings in Japan and on the savings banks, which are both collecting a large share of personal savings, as well as on the Landesbanks in Germany. The cutting of the flow of postal savings and government pension funds to the FILP system, which is planned within the framework of the FILP reform, makes the Japanese system more market compatible and more similar to the German system of policy-based finance, but the differences in the ways of lending and in some other institutional parameters remain.