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The evolution of "too-big-to-fail" policy in Japan: evidence from market equity values

  • Mark M. Spiegel
  • Nobuyoshi Yamori

This paper examines the evidence in bank equity markets concerning bank regulatory policies in Japan over the turbulent 1995-1998 period. We find that investors grouped banks according to regulatory status in assessing whether a bank was currently treated as "too-big-to-fail." when a failure of a bank of certain regulatory status was announced, excess returns on other banks of that regulatory status and below displayed heightened sensitivity to adverse news. This suggests that investors updated their beliefs about which classes of banks were protected by too-big-to-fail policies over the course of the sample. The pattern that emerges suggests that government officials pursued a policy of "regulatory triage," where initially Credit Cooperatives, then Second Regional banks, then First Regional banks, and finally City banks were allowed to fail.

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File URL: http://www.frbsf.org/econrsrch/workingp/pbc/2000/wppb00-01.pdf
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Paper provided by Federal Reserve Bank of San Francisco in its series Pacific Basin Working Paper Series with number 00-01.

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Date of creation: 2000
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Handle: RePEc:fip:fedfpb:00-01
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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, vol. 53(2), pages 283-305, April.
  2. Hesna Genay, 1999. "Japanese banks and market discipline," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Aug.
  3. Nobuyoshi Yamori, 1999. "Stock Market Reaction to the Bank Liquidation in Japan: A Case for the Informational Effect Hypothesis," Journal of Financial Services Research, Springer, vol. 15(1), pages 57-68, February.
  4. Aharony, Joseph & Swary, Itzhak, 1996. "Additional evidence on the information-based contagion effects of bank failures," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 57-69, January.
  5. Yamori, Nobuyoshi & Murakami, Akinobu, 1999. "Does bank relationship have an economic value?: The effect of main bank failure on client firms," Economics Letters, Elsevier, vol. 65(1), pages 115-120, October.
  6. Larry D. Wall, 1993. "Too-big-to-fail after FDICIA," Economic Review, Federal Reserve Bank of Atlanta, issue Jan, pages 1-14.
  7. Nobuyoshi Yamori, 1999. "Contagion effects of bank liquidation in Japan," Applied Economics Letters, Taylor & Francis Journals, vol. 6(11), pages 703-705.
  8. Robert L. Hetzel, 1991. "Too big to fail : origins, consequences, and outlook," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 3-15.
  9. Mark M. Spiegel, 1999. "Bank charter value and the viability of the Japanese convoy system," Pacific Basin Working Paper Series 99-06, Federal Reserve Bank of San Francisco.
  10. Elijah Brewer, III & Hesna Genay & William C. Hunter & George G. Kaufman, 1999. "Does the Japanese stock market price bank risk? evidence from bank failures," Proceedings 638, Federal Reserve Bank of Chicago.
  11. Mark M. Spiegel, 1999. "Moral hazard under the Japanese "convoy" banking system," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13.
  12. Harold A. Black & M. Cary Collins & Breck L. Robinson & Robert L. Schweitzer, 1997. "Changes In Market Perception Of Riskiness: The Case Of Too-Big-To-Fail," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(3), pages 389-406, 09.
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