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Structural Disposal and Cyclical Adjustment: Non-performing Loans, Structural Transition, and Regulatory Reform in Japan, 1997-2011

  • KAWASHIMA, Toshiki
  • NAKABAYASHI, Masaki

    ()

    (Institute of Social Science, The University of Tokyo)

Japan experienced falling asset prices, financial market reform, and non-performing loan reductions from the late 1990s. We examine whether it was appropriate to guide the banking sector to aggressively write off non-performing loans in the early 2000s under the shadow of regulatory reform and the structural transition of corporate financing. Our results indicate that non-performing loans could have been cyclically reduced only by a further extension of mortgage loans, as the deregulated corporate sector reduced its reliance on banking and increased its bond issuance. Structural non-performing loan disposal is justifiable to avoid another housing market bubble.

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File URL: http://www.iss.u-tokyo.ac.jp/publishments/dpf/pdf/f-167.pdf
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Paper provided by Institute of Social Science, The University of Tokyo in its series ISS Discussion Paper Series (series F) with number f167.

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Length: 30 pages
Date of creation: 11 Feb 2014
Date of revision: 27 Apr 2014
Handle: RePEc:itk:issdps:f167
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  1. Masaji Kano & Hirofumi Uchida & Gregory F. Udell & Wako Watanabe, 2006. "Information Verifiability, Bank Organization, Bank Competition and Bank-Borrower Relationships," Discussion papers 06003, Research Institute of Economy, Trade and Industry (RIETI).
  2. Mathias Hoffmann & Toshihiro Okubo, 2013. "'By a Silken Thread': Regional Banking Integration and Pathways to Financial Development in Japan's Great Recession," CESifo Working Paper Series 4090, CESifo Group Munich.
  3. Joe Peek & Eric S. Rosengren, 1996. "The international transmission of financial shocks: the case of Japan," Working Papers 96-1, Federal Reserve Bank of Boston.
  4. Louzis, Dimitrios P. & Vouldis, Angelos T. & Metaxas, Vasilios L., 2012. "Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1012-1027.
  5. Millet-Reyes, Benedicte, 2000. "The deregulation of capital markets in France," Journal of Multinational Financial Management, Elsevier, vol. 10(2), pages 109-132, June.
  6. Masami Imai & Seitaro Takarabe, 2011. "Bank Integration and Transmission of Financial Shocks: Evidence from Japan," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 155-83, January.
  7. Honda, Etsuro, 2003. "Financial deregulation in Japan," Japan and the World Economy, Elsevier, vol. 15(1), pages 135-140, January.
  8. Uchida, Hirofumi & Satake, Mitsuhiko, 2009. "Market discipline and bank efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 792-802, December.
  9. Koetter, Michael & Wedow, Michael, 2010. "Finance and growth in a bank-based economy: Is it quantity or quality that matters?," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1529-1545, December.
  10. Takeo Hoshi, 2011. "Financial Regulation: Lessons from the Recent Financial Crises," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 120-28, March.
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