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Financial Functions Stabilization Act

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Abstract

In 1990, the asset-pricing bubble in Japan peaked and began a steady decline. Over the next seven years, a series of bank failures induced the Japanese government to introduce the first of a series of capital injections in 1998, 1999, and 2004. The capital injection of 1998, authorized by the Financial Functions Stabilization Act, made JPY13 trillion ($103 billion) available to financial institutions that applied. By the end of the injection window, 21 banks and trusts applied for and received JPY1.8 trillion ($13.5 billion) in subordinated debt and loans and preferred shares. While there were no limits on compensation for management, the Act restricted dividend payments and required banks to submit restructuring plans. However, lack of oversight over bank balance sheets to pursue risk-based injection strategies, regulatory forbearance, and banks' application for capitalization below balance sheet needs prevented complete recapitalization of the banks and led to a second recapitalization scheme one year later.

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  • Unnava, Vaasavi, 2021. "Financial Functions Stabilization Act," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(3), pages 285-314, April.
    • Handle: RePEc:ysm:ypfsfc:331616
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    File URL: https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1205&context=journal-of-financial-crises
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    References listed on IDEAS

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    1. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 2001. "Financial Policy and Central Banking in Japan," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032856, December.
    2. Hoshi, Takeo & Kashyap, Anil K, 2010. "Will the U.S. bank recapitalization succeed? Eight lessons from Japan," Journal of Financial Economics, Elsevier, vol. 97(3), pages 398-417, September.
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    Cited by:

    1. Dreyer, Mallory, 2021. "The Resolution and Collection Corporation of Japan," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(2), pages 410-449, April.

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    More about this item

    Keywords

    capital injection; Financial Crisis Resolution Committee; Japanese Financial Crisis; Japan; jusen; regulatory forbearance; Resolution and Collection Bank;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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