The aim of this thesis is to elucidate the position of Japanese bank regulators in the international harmonising process of the capital standards set by the Basle Committee on Banking Supervision and in the domestic politics of banking regulation. An attempt is made to test a two-level-game model that positions Japanese regulators as the link between international and domestic politics. The thesis systematically assesses the strengths and the weaknesses of the two-level approach, and considers the validity of alternatives-systemic- and domestic-level approaches. The selection of case studies is made on such a basis: the case of negotiation processes and that of implementation. On the one hand, a close look at Japanese regulators' preference formation and behaviour through a filter of the two-level-game framework allows us to better understand their behaviour at the negotiation process. The thesis presents a counterexample to mainstream systemic-level explanations about the forces leading to the Japanese Ministry of Finance's negotiating position. The MoF was tactically motivated to use the internationally agreed rules and norms to legitimise its domestic policies and to shore up its position in the domestic politics. On the other hand, the thesis points out limits to the logic of two-level-game approach concerning implementation and compliance issues. The hypotheses derived from the logic of two-level-game approach do not sufficiently explain ineffectual Japanese compliance with the Basle Accord. Both domestic institutional "capacity" and the "willingness" of regulators are important in determining the degree of compliance. These institutional and intentional factors underline the possibility that the Basle rules can be sabotaged by vested interests at the implementation phase. With regard to implementation issues, therefore, more persuasive explanations come from the domestic-based argument that dysfunctional domestic institutions hampered Japanese credible commitments to the Basle Accord.

The Japanese banking system provides a distinctive platform for the examination of the long-lasting effect of problem loans on bank performance. Japan is also known for an extended quantitative easing programme of unprecedented scale. Yet the links between risk-taking activities, quantitative easing, and bank competition are largely unexplored. This thesis employs a unique database, which allows us to distinguish between bankrupt and restructured loans. The aim of the thesis is to investigate the impact of these loans on Japanese bank efficiency and productivity growth, as well as their relationship with bank competition and quantitative easing policy. We measure technical efficiency by modifying a translog enhanced hyperbolic distance function with two undesirable outputs, identified as problem loans and problem other earning assets. Further analyses reveal that bankrupt loans affect efficiency in a manner related to the “moral hazard, skimping” hypothesis, with the causality originating from bankrupt loans. In contrast, the relationship between restructured loans and efficiency supports the “bad luck” hypothesis. We also follow the parametric approach to quantify the impact of bankrupt and restructured loans on productivity growth of the Japanese banking system. We further perform convergence cluster analysis to examine convergence in productivity growth between regions, where limited convergence is reported. Additionally, this thesis employs, for the first time, the bank-level Boone indicator to measure bank competition in Japan to examine the underlying linkages between quantitative easing, competition, and risk. Given the scale of problem loans, we measure bank risk-taking based on bankrupt and restructured loans. Our analyses show that enhancing quantitative easing and competition would reduce bankrupt and restructured loans, but it would negatively affect financial stability. In light of the ongoing negative interest rates and quantitative and qualitative easing policy to enhance economic growth in Japan, this thesis would provide insightful implications for policymakers and regulators.