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The impact of Japan's financial stabilization laws on bank equity values

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  • Mark Spiegel
  • Nobuyoshi Yamori

Abstract

In the fall of 1998, two important financial regulatory reform acts were passed in Japan. The first of these acts, the Financial Recovery Act, created a bridge bank scheme and provided funds for the resolution of failed banks. The second act, the Rapid Revitalization Act, provided funds for the assistance of troubled banks. While both of these acts provided some government assistance to the banking sector, they also called for reforms aimed at strengthening the regulatory environment. ; Using an event study framework, this paper examines the evidence in equity markets concerning the anticipated impact of the regulatory reforms. Our evidence suggests that the anticipated regulatory impact of the Financial Recovery Act was mixed, while the Rapid Revitalization Act was expected to disporportionately favor weaker Japanese banks. As such, it appears that the market was skeptical about the degree to which the new acts would lead to true banking reform.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Pacific Basin Working Paper Series with number 2001-07.

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Date of creation: 2001
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Handle: RePEc:fip:fedfpb:2001-07

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Keywords: Japan;

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References

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  1. Peek, Joe & Rosengren, Eric S., 2001. "Determinants of the Japan premium: actions speak louder than words," Journal of International Economics, Elsevier, Elsevier, vol. 53(2), pages 283-305, April.
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  8. Edward J. Kane & Haluk Unal, 1988. "Change in Market Assessments of Deposit-Institution Riskiness," NBER Working Papers 2530, National Bureau of Economic Research, Inc.
  9. Mark M. Spiegel & Nobuyoshi Yamori, 2000. "The evolution of "too-big-to-fail" policy in Japan: evidence from market equity values," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 00-01, Federal Reserve Bank of San Francisco.
  10. Aharony, Joseph & Swary, Itzhak, 1996. "Additional evidence on the information-based contagion effects of bank failures," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(1), pages 57-69, January.
  11. Giliberto, Michael, 1985. "Interest Rate Sensitivity in the Common Stocks of Financial Intermediaries: A Methodological Note," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 20(01), pages 123-126, March.
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  13. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  14. Spiegel, M.M. & Yamori, N., 2000. "The Evolution of Too-Big-Fail Policy in Japan: Evidence from Market Equity Values," Papers, Economisch Institut voor het Midden en Kleinbedrijf- pb00-01, Economisch Institut voor het Midden en Kleinbedrijf-.
  15. Sundaram, Sridhar & Rangan, Nanda & Davidson, Wallace III, 1992. "The market valuation effects of the Financial Institutions Reform, Recovery and Enforcement Act of 1989," Journal of Banking & Finance, Elsevier, Elsevier, vol. 16(6), pages 1097-1122, December.
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Citations

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Cited by:
  1. Schäfer, Alexander & Schnabel, Isabel & Weder di Mauro, Beatrice, 2013. "Financial Sector Reform After the Crisis: Has Anything Happened?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9502, C.E.P.R. Discussion Papers.
  2. Shimizu, Katsutoshi, 2006. "How can we effectively resolve the financial crisis: Empirical evidence on the bank rehabilitation plan of the Japanese government," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 14(2), pages 119-134, April.
  3. David C. Smith, 2002. "Loans to Japanese borrowers," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 2002-11, Federal Reserve Bank of San Francisco.
  4. Imai, Masami, 2007. "The emergence of market monitoring in Japanese banks: Evidence from the subordinated debt market," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(5), pages 1441-1460, May.
  5. Masami Imai, 2006. "The Emergence of Market Monitoring in Japanese Banks: Evidence from the Subordinated Debt Market," Wesleyan Economics Working Papers 2006-008, Wesleyan University, Department of Economics.
  6. Kobayashi, Takeshi & Spiegel, Mark M. & Yamori, Nobuyoshi, 2006. "Quantitative easing and Japanese bank equity values," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 699-721, December.
  7. Kimie Harada & Takatoshi Ito & Shuhei Takahashi, 2010. "Is the Distance to Default a Good Measure in Predicting Bank Failures? Case Studies," NBER Working Papers 16182, National Bureau of Economic Research, Inc.
  8. Harada, Kimie & Ito, Takatoshi & Takahashi, Shuhei, 2013. "Is the Distance to Default a good measure in predicting bank failures? A case study of Japanese major banks," Japan and the World Economy, Elsevier, Elsevier, vol. 27(C), pages 70-82.
  9. David C. Smith, 2003. "Loans to Japanese borrowers," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 769, Board of Governors of the Federal Reserve System (U.S.).
  10. Smith, David C., 2003. "Loans to Japanese borrowers," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 283-304, September.
  11. Wang, Chien-An & Shen, Chung-Hua, 2012. "Decoupling the distressed banks and their clients, and coupling the distressed firms and their lending banks," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 20(3), pages 483-505.

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