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

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  • Mark M. 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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  • Mark M. Spiegel & Nobuyoshi Yamori, 2001. "The impact of Japan's financial stabilization laws on bank equity values," Pacific Basin Working Paper Series 2001-07, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfpb:2001-07
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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, vol. 20(3), pages 483-505.
    3. 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.
    4. Imai, Masami, 2007. "The emergence of market monitoring in Japanese banks: Evidence from the subordinated debt market," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1441-1460, May.
    5. Nakashima, Kiyotaka, 2016. "An econometric evaluation of bank recapitalization programs with bank- and loan-level data," Journal of Banking & Finance, Elsevier, vol. 63(C), pages 1-24.
    6. 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, vol. 14(2), pages 119-134, April.
    7. Teresa Valeria Parise & Vijay Shenai, 2018. "The Value Effect of Financial Reform on U.K. Banks and Insurance Companies," IJFS, MDPI, vol. 6(3), pages 1-28, September.
    8. Tatsuyoshi Miyakoshi & Yoshihiko Tsukuda, 2007. "Assessments of the program for financial revival of the Japanese banks," Applied Financial Economics, Taylor & Francis Journals, vol. 17(11), pages 901-912.
    9. Smith, David C., 2003. "Loans to Japanese borrowers," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 283-304, September.
    10. David C. Smith, 2002. "Loans to Japanese borrowers," Pacific Basin Working Paper Series 2002-11, Federal Reserve Bank of San Francisco.
    11. Schnabel, Isabel & Weder di Mauro, Beatrice & Schäfer, Alexander, 2016. "Bail-in Expectations for European Banks: Actions Speak Louder than Words," CEPR Discussion Papers 11061, C.E.P.R. Discussion Papers.
    12. 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, vol. 27(C), pages 70-82.
    13. Schäfer, Alexander & Schnabel, Isabel & Weder di Mauro, Beatrice, 2016. "Bail-in Expectations for European Banks: Actions Speak Louder than Words," CEPR Discussion Papers 11061, C.E.P.R. Discussion Papers.
    14. Stephen Kawas & Everton Dockery, 2023. "What do we know about the stock markets’ reaction to regulatory announcements regarding financial institutions? Evidence from UK financial institutions," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 31-67, January.
    15. Schäfer, Alexander & Schnabel, Isabel & Weder di Mauro, Beatrice, 2016. "Bail-in expectations for European banks: Actions speak louder than words," ESRB Working Paper Series 7, European Systemic Risk Board.
    16. David C. Smith, 2003. "Loans to Japanese borrowers," International Finance Discussion Papers 769, Board of Governors of the Federal Reserve System (U.S.).
    17. Alexander Schaefer & Isabel Schnabel & Beatrice Weder di Mauro, 2013. "Financial Sector Reform After the Crisis: Has Anything Happened?," Working Papers 1304, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 24 May 2013.

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