Abstract: The Japanese “main bank system” figures prominently in the recent literature on “relationship banking,” for by most accounts the “system” epitomizes relationship finance. Traditionally (according to the literature), every large Japanese firm had a long‐term relationship with one bank that served as its “main bank.” That main bank monitored the firm, intervened in its governance through board appointments, acted as the delegated monitor for other creditors, and agreed to rescue the firm if it fell into financial distress. As Japan deregulated its financial markets in the 1980s, however, these firms abandoned their relational lender for market finance. As main banks then lost their ability to constrain the firms—as relationship banking unraveled—the firms gambled in the stock and real estate bubbles, and threw the country into recession. Using financial and governance data from 1980 through 1994, we show that none of this is true. The accounts of the Japanese main bank instead represent fables, mythical stories scholars recite because they so conveniently illustrate theories and models in vogue.