Advanced Search
MyIDEAS: Login

The effectiveness of bank recapitalization policies in Japan

Contents:

Author Info

  • Montgomery, Heather
  • Shimizutani, Satoshi

Abstract

This study examines the effectiveness of bank recapitalization policies in Japan. Based on a reading of the "business revitalization plan" submitted by banks requesting government funds, we identify four primary goals for the capital injection plan in Japan: (1) to increase the bank capital ratios; (2) to increase write-offs of non-performing loans; (3) to increase lending, in particular to small and medium enterprises, in order to avoid a "credit crunch"; (4) to encourage restructuring. Using a panel of individual bank data, we empirically estimate the effectiveness of the Japanese government policy of public fund injection in achieving the first three of these stated goals. Our empirical analysis reveals that, in general, the capital injections into the large internationally active banks were more effective than those into the smaller domestic banks in Japan. In addition, the second round capital injection, administered in 1998, was more effective than the first round, administered in 1997. The first capital injection in 1997 mostly served as a stop-gap measure to help the large international banks clear the 8% capital adequacy ratio (BIS ratio) required under the Basel Accord and did not make much contribution to the other policy objectives. The second round of capital injections in 1998 were more effective, boosting capital adequacy ratios for the domestic as well as international banks and supporting other policy objectives as well by stimulating banks to write off bad loans and increase domestic lending, in particular to small and medium enterprises.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VF1-4PGGP3S-1/2/4f3935fdcaba5e9cb9f6c7d158725c12
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 21 (2009)
Issue (Month): 1 (January)
Pages: 1-25

as in new window
Handle: RePEc:eee:japwor:v:21:y:2009:i:1:p:1-25

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505557

Related research

Keywords: Capital injection Japanese Bank Systemic crisis Credit crunch Capital crunch Basel accord BIS ratio Capital adequacy;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hiroshi Nakaso, 1999. "Recent banking sector reforms in Japan," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 1-7.
  2. Joe Peek & Eric S. Rosengren, 2003. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," NBER Working Papers 9643, National Bureau of Economic Research, Inc.
  3. Taizo Motonishi & Hiroshi Yoshikawa, 1999. "Causes of the Long Stagnation of Japan during the 1990fs: Financial or Real?," CIRJE F-Series CIRJE-F-56, CIRJE, Faculty of Economics, University of Tokyo.
  4. Montgomery, Heather, 2005. "The effect of the Basel Accord on bank portfolios in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 19(1), pages 24-36, March.
  5. Joe Peek & Eric S. Rosengren, 1996. "The International Transmission of Financial Shocks: The Case of Japan," Boston College Working Papers in Economics 357, Boston College Department of Economics.
  6. Ito, Takatoshi & Harada, Kimie, 2004. "Credit Derivatives Premium as a New Japan Premium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 965-68, October.
  7. Miyajima, Hideaki & Yafeh, Yishay, 2007. "Japan's banking crisis: An event-study perspective," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2866-2885, September.
  8. Wako Watanabe, 2007. "Prudential Regulation and the "Credit Crunch": Evidence from Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 639-665, 03.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mary Amiti & David E. Weinstein, 2013. "How much do bank shocks affect investment? Evidence from matched bank-firm loan data," Staff Reports 604, Federal Reserve Bank of New York.
  2. Onji, Kazuki & Vera, David & Corbett, Jenny, 2012. "Capital injection, restructuring targets and personnel management: The case of Japanese regional banks," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 495-517.
  3. Akiyoshi, Fumio & Kobayashi, Keiichiro, 2010. "Banking crisis and productivity of borrowing firms: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 22(3), pages 141-150, August.
  4. Barros, Carlos Pestana & Managi, Shunsuke & Matousek, Roman, 2012. "The technical efficiency of the Japanese banks: Non-radial directional performance measurement with undesirable output," Omega, Elsevier, vol. 40(1), pages 1-8, January.
  5. Mike Mariathasan & Ouarda Merrouche, 2012. "Recapitalization, credit and liquidity," Economic Policy, CEPR & CES & MSH, vol. 27(72), pages 603-646, October.
  6. Montgomery, Heather & Takahashi, Yuki, 2011. "Bank recapitalization in the U.S. - lessons from Japan," MPRA Paper 33147, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:japwor:v:21:y:2009:i:1:p:1-25. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.