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Lessons from Japan's Banking Crisis, 1991–2005

Author

Listed:
  • Fujii, Mariko

    (Asian Development Bank Institute)

  • Kawai, Masahiro

    (Asian Development Bank Institute)

Abstract

The Japanese government's response to the financial crisis in the 1990s was late, unprepared and insufficient; it failed to recognize the severity of the crisis, which developed slowly; faced no major domestic or external constraints; and lacked an adequate legal framework for bank resolution. Policy measures adopted after the 1997–1998 systemic crisis, supported by a newly established comprehensive framework for bank resolution, were more decisive. Banking sector problems were eventually resolved by a series of policies implemented from that period, together with an export-led economic recovery. Japan's experience suggests that it is vital for a government not only to recapitalize the banking system but also to provide banks with adequate incentives to dispose of troubled assets from their balance sheets, even if that required the government to mobilize regulatory measures to do so, as was done in Japan in 2002. Economic stagnation can cause new nonperforming loans to emerge rapidly, and deplete bank capital. If the authorities do not address the banking sector problem promptly, then the crisis will prolong and economic recovery will be substantially delayed.

Suggested Citation

  • Fujii, Mariko & Kawai, Masahiro, 2010. "Lessons from Japan's Banking Crisis, 1991–2005," ADBI Working Papers 222, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0222
    as

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    References listed on IDEAS

    as
    1. Masahiro Kawai, 2005. "Reform of the Japanese banking system," International Economics and Economic Policy, Springer, vol. 2(4), pages 307-335, December.
    2. Mitsuhiro FUKAO, 2007. "Financial Crisis and the Lost Decade," Asian Economic Policy Review, Japan Center for Economic Research, vol. 2(2), pages 273-297, December.
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    Cited by:

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    2. Ulrich Volz, 2013. "Lessons of the European crisis for regional monetary and financial integration in East Asia," Asia Europe Journal, Springer, vol. 11(4), pages 355-376, December.
    3. Kourtzidis, Stavros & Matousek, Roman & Tzeremes, Nickolaos G., 2021. "Modelling a multi-period production process: Evidence from the Japanese regional banks," European Journal of Operational Research, Elsevier, vol. 294(1), pages 327-339.
    4. Jiří Štekláč & Vladimír Štípek, 2017. "Smoothing Out The Credit Cycle Under The Conditions Of Current Credit Economy," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 11(1), pages 526-546.

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    More about this item

    Keywords

    japan banking crisis; 1990s; bank capital; financial regulation;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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