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The Evolution Of Bank Resolution Policies In Japan: Evidence From Market Equity Values

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  • Mark M. Spiegel
  • Nobuyoshi Yamori

Abstract

We examine the evidence in equity markets concerning bank regulatory policies in Japan from 1995 to 1999. Our results support the presence of information‐based contagion in Japanese equity markets. When the failure of a bank of certain regulatory status was announced, it adversely affected excess returns on banks with equal or lower levels of regulatory protection. Market participants therefore initially behaved as if only second regional and smaller banks would be allowed to fail. As the situation deteriorated, however, banks that traditionally enjoyed greater regulatory protection were also perceived to lose their too‐big‐to‐fail status.

Suggested Citation

  • Mark M. Spiegel & Nobuyoshi Yamori, 2004. "The Evolution Of Bank Resolution Policies In Japan: Evidence From Market Equity Values," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(1), pages 115-132, March.
    • Handle: RePEc:bla:jfnres:v:27:y:2004:i:1:p:115-132
    DOI: 10.1111/j.1475-6803.2004.00080.x
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    References listed on IDEAS

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    1. Elijah Brewer & Hesna Genay & William C. Hunter & George G. Kaufman, 1999. "Does the Japanese stock market price bank risk? evidence from financial firm failures," Working Paper Series WP-99-31, Federal Reserve Bank of Chicago.
    2. Elijah Brewer & 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.
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    Cited by:

    1. Mark M. Spiegel & Nobuyoshi Yamori, 2003. "Determinants of voluntary bank disclosure: evidence from Japanese Shinkin banks," Pacific Basin Working Paper Series 03-03, Federal Reserve Bank of San Francisco.
    2. Chen, Sichong, 2013. "How do leverage ratios affect bank share performance during financial crises: The Japanese experience of the late 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 1-18.
    3. Spiegel, Mark M. & Yamori, Nobuyoshi, 2007. "Market price accounting and depositor discipline: The case of Japanese regional banks," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 769-786, March.
    4. Mark Spiegel & Nobuyoshi Yamori, 2003. "Financial Turbulence and the Japanese Main Bank Relationship," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(3), pages 205-223, June.
    5. Pop, Adrian & Pop, Diana, 2009. "Requiem for market discipline and the specter of TBTF in Japanese banking," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1429-1459, November.
    6. Imai, Masami, 2006. "Market discipline and deposit insurance reform in Japan," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3433-3452, December.
    7. 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.
    8. Spiegel, Mark M. & Yamori, Nobuyoshi, 2003. "The impact of Japan's financial stabilization laws on bank equity values," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 263-282, September.
    9. 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.
    10. Hashimoto, Yuko, 2005. "The impact of the Japanese banking crisis on the intraday FX market in late 1997," Journal of Asian Economics, Elsevier, vol. 16(2), pages 205-222, April.
    11. Masami Imai, 2009. "Political Influence and Declarations of Bank Insolvency in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 131-158, February.
    12. Harada, Kimie & Ito, Takatoshi, 2011. "Did mergers help Japanese mega-banks avoid failure? Analysis of the distance to default of banks," Journal of the Japanese and International Economies, Elsevier, vol. 25(1), pages 1-22, March.
    13. Shimizu, Katsutoshi, 2009. "Is the information produced in the stock market useful for depositors?," Finance Research Letters, Elsevier, vol. 6(1), pages 34-39, March.
    14. 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.
    15. Mark M. Spiegel & Nobuyoshi Yamori, 2004. "Market price accounting and depositor discipline in Japanese regional banks," Working Paper Series 2004-27, Federal Reserve Bank of San Francisco.
    16. Baba, Naohiko & Inada, Masakazu, 2009. "Why do Japanese regional banks issue subordinated debts?," Japan and the World Economy, Elsevier, vol. 21(4), pages 358-364, December.

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