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Japanese banking problems: implications for lending in the United States

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Author Info

  • Joe Peek
  • Eric S. Rosengren

Abstract

Fueled by a high saving rate, active exporting firms, and a booming stock market, Japanese banks expanded aggressively worldwide during the 1980's. By 1988, all of the 10 largest banks in the world were Japanese, with a significant presence in Southeast Asia, Europe, Latin America, and the United States. In the 1990's, however, the tide turned. Japanese banks experienced a significant diminution of capital as a result of sharp declines in the Japanese stock market and substantial increases in nonperforming loans. Increasingly constrained by international capital requirements, Japanese banks began to shrink their international operations while insulating their domestic lending operations. ; This article examines factors affecting the Japanese banking presence in the United States. In particular, the authors examine the role that capital requirements played in the decisions by Japanese banks to reduce their lending here. Because U.S. banking markets have been unusually open by international standards, and because of the large penetration by Japanese banks, the experience here provides useful insights into how globally active banks may react in the future to problems in their domestic markets.

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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (1999)
Issue (Month): Jan ()
Pages: 25-36

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Handle: RePEc:fip:fedbne:y:1999:i:jan:p:25-36

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Keywords: Banks and banking - Japan;

References

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  1. Gibson, Michael S, 1995. "Can Bank Health Affect Investment? Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 68(3), pages 281-308, July.
  2. Allen B. Frankel & Paul B. Morgan, 1992. "Deregulation and competition in Japanese banking," Proceedings 383, Federal Reserve Bank of Chicago.
  3. Kenneth R. French & James M. Poterba, 1990. "Were Japanese Stock Prices Too High?," NBER Working Papers 3290, National Bureau of Economic Research, Inc.
  4. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
  5. Allen B. Frankel & Paul B. Morgan, 1992. "Deregulation and competition in Japanese banking," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 579-593.
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Cited by:
  1. Luc Laeven & Fabian Valencia, 2008. "The Use of Blanket Guarantees in Banking Crises," IMF Working Papers 08/250, International Monetary Fund.
  2. Chakraborty, Suparna & Allen, Linda, 2007. "Revisiting the Level Playing Field: International Lending Responses to Divergences in Japanese Bank Capital Regulations from the Basel Accord," MPRA Paper 1805, University Library of Munich, Germany.

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