IDEAS home Printed from https://ideas.repec.org/a/ysm/ypfsfc/331616.html
   My bibliography  Save this article

Financial Functions Stabilization Act

Author

Listed:

Abstract

In 1990, the asset-pricing bubble in Japan peaked and began a steady decline. Over the next seven years, a series of bank failures induced the Japanese government to introduce the first of a series of capital injections in 1998, 1999, and 2004. The capital injection of 1998, authorized by the Financial Functions Stabilization Act, made JPY13 trillion ($103 billion) available to financial institutions that applied. By the end of the injection window, 21 banks and trusts applied for and received JPY1.8 trillion ($13.5 billion) in subordinated debt and loans and preferred shares. While there were no limits on compensation for management, the Act restricted dividend payments and required banks to submit restructuring plans. However, lack of oversight over bank balance sheets to pursue risk-based injection strategies, regulatory forbearance, and banks' application for capitalization below balance sheet needs prevented complete recapitalization of the banks and led to a second recapitalization scheme one year later.

Suggested Citation

  • Unnava, Vaasavi, 2021. "Financial Functions Stabilization Act," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(3), pages 285-314, April.
    • Handle: RePEc:ysm:ypfsfc:331616
    as

    Download full text from publisher

    File URL: https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1205&context=journal-of-financial-crises
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hoshi, Takeo & Kashyap, Anil K, 2010. "Will the U.S. bank recapitalization succeed? Eight lessons from Japan," Journal of Financial Economics, Elsevier, vol. 97(3), pages 398-417, September.
    2. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 2001. "Financial Policy and Central Banking in Japan," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032856, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dreyer, Mallory, 2021. "The Resolution and Collection Corporation of Japan," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(2), pages 410-449, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kiichi Tokuoka & Mr. Murtaza H Syed & Mr. Kenneth H Kang, 2009. "“Lost Decade” in Translation - What Japan’s Crisis could Portend about Recovery from the Great Recession," IMF Working Papers 2009/282, International Monetary Fund.
    2. Song, Wei-Ling & Uzmanoglu, Cihan, 2016. "TARP announcement, bank health, and borrowers’ credit risk," Journal of Financial Stability, Elsevier, vol. 22(C), pages 22-32.
    3. Shaozhen Han & Guoming Li & Michel Lubrano & Zhou Xun, 2020. "Lie of the Weak: Inconsistent Corporate Social Responsibility Activities of Chinese Zombie Firms," AMSE Working Papers 2001, Aix-Marseille School of Economics, France.
    4. Fricke, Daniel & Roukny, Tarik, 2020. "Generalists and specialists in the credit market," Journal of Banking & Finance, Elsevier, vol. 112(C).
    5. Jannis Bischof & Ulf Brüggemann & Holger Daske, 2023. "Asset Reclassifications and Bank Recapitalization During the Financial Crisis," Management Science, INFORMS, vol. 69(1), pages 75-100, January.
    6. Osada Takeshi & Onji Kazuki & Vera David, 2017. "Banks Restructuring Sonata: How Capital Injection Triggered Labor Force Rejuvenation in Japanese Banks," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(2), pages 1-25, April.
    7. Martin Goetz & Luc Laeven & Ross Levine, 2020. "Do Bank Insiders Impede Equity Issuances?," NBER Working Papers 27442, National Bureau of Economic Research, Inc.
    8. Josef Schroth, 2012. "Financial Crisis Resolution," Staff Working Papers 12-42, Bank of Canada.
    9. Jou, Rosemary & Chen, Shi & Tsai, Jeng-Yan, 2017. "Politically connected lending, government capital injection, and bank performance," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 220-232.
    10. Alan J. Auerbach & Maurice Obstfeld, 2005. "The Case for Open-Market Purchases in a Liquidity Trap," American Economic Review, American Economic Association, vol. 95(1), pages 110-137, March.
    11. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777, March.
    12. Kasahara, Hiroyuki & Sawada, Yasuyuki & Suzuki, Michio, 2024. "The effect of bank recapitalization policy on credit allocation, investment, and productivity: Evidence from a banking crisis in Japan," Journal of Banking & Finance, Elsevier, vol. 158(C).
    13. Pandey, Ashish, 2016. "High Bids and Low Recovery: A Possible Case for Non-Performing Loan Auctions in India," MPRA Paper 75254, University Library of Munich, Germany.
    14. Bholat, David & Lastra, Rosa & Markose, Sheri & Miglionico, Andrea & Sen, Kallol, 2016. "Non-performing loans: regulatory and accounting treatments of assets," Bank of England working papers 594, Bank of England.
    15. Kosuke Aoki & Nao Sudo, 2013. "Bank’s regulation, asset portfolio choice of banks, and macroeconomic dynamics," CARF F-Series CARF-F-323, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    16. Thomas Philippon & Philipp Schnabl, 2011. "Informational Rents, Macroeconomic Rents, and Efficient Bailouts," NBER Working Papers 16727, National Bureau of Economic Research, Inc.
    17. Viral V Acharya & Lea Borchert & Maximilian Jager & Sascha Steffen, 2021. "Kicking the Can Down the Road: Government Interventions in the European Banking Sector," The Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4090-4131.
    18. Haavio, Markus & Ripatti, Antti & Takalo, Tuomas, 2016. "Saving Wall Street or main street," Bank of Finland Research Discussion Papers 12/2016, Bank of Finland.
    19. Brahim Guizani & Wako Watanabe, 2010. "The Deposit Insurance and the Risk-Shifting Incentive Evidence from the Blanket Deposit Insurance in Japan," Keio/Kyoto Joint Global COE Discussion Paper Series 2010-004, Keio/Kyoto Joint Global COE Program.
    20. Koetter, Michael & Müller, Carola & Noth, Felix & Fritz, Benedikt, 2018. "May the force be with you: Exit barriers, governance shocks, and profitability sclerosis in banking," Discussion Papers 49/2018, Deutsche Bundesbank.

    More about this item

    Keywords

    capital injection; Financial Crisis Resolution Committee; Japanese Financial Crisis; Japan; jusen; regulatory forbearance; Resolution and Collection Bank;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ysm:ypfsfc:331616. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/smyalus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.