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

  • Watanabe, Wako

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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File URL: http://www.sciencedirect.com/science/article/B6WMC-4Y52PYM-1/2/dc356169eb93bc0bf17a432c9231f74a
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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

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