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Does a large loss of bank capital cause Evergreening? Evidence from Japan

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  • Watanabe, Wako

Abstract

Using the real estate lending share of the bank's loan portfolio at the peak of the land-price bubble as an instrument for bank capital, we identify the impact of capital adequacy on the allocation of bank lending under the Basel regulatory framework. We find that, in Japan, a large loss of bank capital caused by the regulator's excessively tough stance towards banks not only induced the contraction of the bank lending supply but also the banks' reallocation of their lending portfolios to financially unhealthy industries with a higher concentration of non-performing loans.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 24 (2010)
Issue (Month): 1 (March)
Pages: 116-136

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Handle: RePEc:eee:jjieco:v:24:y:2010:i:1:p:116-136

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Evergreening Bank capital Real estate lending Instrumental variable;

References

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Cited by:
  1. De Veirman, Emmanuel & Levin, Andrew T., 2012. "When did firms become more different? Time-varying firm-specific volatility in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 578-601.
  2. Sweder van Wijnbergen & Timotej Homar, 2013. "Recessions after Systemic Banking Crises: Does it matter how Governments intervene?," Tinbergen Institute Discussion Papers 13-039/VI/DSF54, Tinbergen Institute, revised 21 Nov 2013.

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