Banking Crisis in Japan



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Code : ECC0005

Year :
2004

Industry : Banking, Insurance and Financial Services

Region : Japan

Teaching Note:Not Available

Structured Assignment : Not Available

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Abstract: The Japanese banks played a major role in the economic development of Japan during the post-war period between 1945 and 1973. They financed start-up companies and actively funded their expansion. They were the prime financiers, since there were restrictions on other options of financing such as equities and bonds. But this changed in the 1970s, with the reforms in the financial sector.The reforms eased the restrictions on bond and equity issuance. Financial markets were deregulated and this allowed the major Japanese companies to reduce their dependence on banks. They were able to substitute cheap bond financing for expensive bank credit. This reduced the role of banks as prime financiers. To overcome this situation, banks reorganised their portfolios and started lending to riskier segments like consumer lending and the real-estate industry. This resulted in an asset price bubble, which finally burst in 1989, resulting in huge non-performing loans for Japanese banks.

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Pedagogical Objectives:

  • To discuss the effects of reckless lending and how the continued presence of non-performing loans in the banking sector had a deleterious effect on the Japanese economy.
    Keywords : Investment & Banking Case Study, Japanese banking crisis, Foreign Exchange and Trade Control Act, Liberalisation, Asset price bubble, Government bonds, Bond Issuance Committee, Basle capital accord, Deposit Insurance Corporation, Financial Supervisory Agency, Yakuza and Jusen, Keiretsu and Zaibatsu, Big bang reforms, Non-performing loans, Capital market deregulation, Capital adequacy ratio
    Contents :
    » The Reform Process
    » Three-Step Plan
    » The Jusen Companies
    » The Keiretsu System


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