1,721,108 research outputs found
Do Banks Reduce Lending Preemptively in Response to Capital Losses?
Get PDFWe empirically examined whether declining bank loans in Japan in the late 1990s are the result of banks' downward adjustments of lending supply (a "credit crunch") in response to capital losses (a "capital crunch"). Estimating the new lending supply function as a non-linear function of the capital to asset ratio, we found that the (new lending supply) function is not only increasing in bank capital but also concave in bank capital, which supports the view that a "credit crunch" occurs since forward-looking banks have an incentive to avoid failing to meet regulatory requirements in the future.
Financial intermediation, agency, and collateral and the dynamics of banking crises: theory and evidence for the Japanese banking crisis
Get PDFWe outline a model of an endogenously evolving banking crisis in a growing economy subject to either idiosyncratic or aggregate productivity shocks. The model incorporates agency problems at two levels: between firms and their banks and between banks and the banks' depositors and deposit insurers. In equilibrium, banks have an incentive to renegotiate loans to insolvent firms, leading to an increasing contingent liability of the government with deposit insurance and regulatory forbearance. The growth rate of output is endogenous, and we explain how the agency problems affect the qualitative dynamics of the economy in this framework. We find that the dynamics predicted by our model fit the recent behavior of the Japanese economy well. As Japan was hit by a succession of adverse aggregate shocks in the 1990s, bank portfolios continued to deteriorate and the market value of collateral (land) collapsed. The decline in collateral values led to a fall in bank lending, a decline in physical investment, and finally, a fall in GDP.
Prudential Regulation, the Credit Crunch" and the Ineffectiveness of Monetary Policy: Evidence from Japan
Get PDFThe underlying causes of sharp declines in bank lending during recessions in large developed economies, as exemplified by the U.S. in the early 1990s and Japan in the late 1990s, are still being debated due to a lack of any convincing identification strategy of the supply side capital-lending relationship with lending demand. This paper is a first attempt to construct a strong instrument for bank capital from empirical observation of the banks' behavioral changes in the past and to estimate the impact of capital adequacy on the lending supply. The implications of prudential regulation and the ineffectiveness of a loose monetary policy are discussed based on the micro evidence presented.
Financial intermediation, agency and collateral and the dynamics of banking crises: theory and evidence for the Japanese banking crisis
Get PDFWe outline a model of an endogenously evolving banking crisis in a growing economy subject to either idiosyncratic or aggregate productivity shocks. The model incorporates agency problems at two levels: between firms and their banks and between banks and the banks’ depositors and deposit insurers. In equilibrium, banks have an incentive to renegotiate loans to insolvent firms, leading to an increasing contingent liability of the government with deposit insurance and regulatory forbearance. The growth rate of output is endogenous, and we explain how the agency problems affect the qualitative dynamics of the economy in this framework. We find that the dynamics predicted by our model fit the recent behavior of the Japanese economy well. As Japan was hit by a succession of adverse aggregate shocks in the 1990s, bank portfolios continued to deteriorate, and the market value of collateral (land) collapsed. The decline in collateral values led to a fall in bank lending, a decline in physical investment, and finally, a fall in GDP.
"The Japanese Banking Crisis and Economic Growth: Theoretical and Empirical Implications of Deposit Guarantees and Weak Financial Regulation"
Get PDFAn endogenous growth model with financial intermediation is used to show how government policies towards the financial sector can lead to banking crises and persistent growth slumps. The model shows how government deposit guarantees and regulatory forbearance can lead to permanent declines in the growth rate of the economy. The effects of inadequate prudential supervision on asset price dynamics under perfect foresight are also derived in the model. The policies that are used in the analysis are based on essential features of Japanese financial regulation. The implications of the model are compared to the experience of the Japanese economy and financial system during the 1990s. We find that the dynamics predicted by our model are generally consistent with the recent behavior of economic aggregates, asset prices and the banking system for Japan. A policy implication of the model is that the impact on future economic growth depends upon the length of time the government fails to enforce loan-loss reserving by banks.
"The Fiscal Investment and Loan Program in Transition"
Get PDFThis paper discusses the adequacy of the activities of the Fiscal Investment Loan Program agencies after the fundamental reform in April 2001, which disconnected postal savings and public pension reserves from the FILP. It is found that many ideas of justifying the government interventions to the financial sector have now lost their relevancy. The activity of government financial intermediaries should be streamlined. Among infrastructure construction projects, the most serious part of welfare loss lies on national motorway construction, which is estimated to be about 14.5 trillion yen of welfare loss.
Deposit Insurance, Regulatory Forbearance and Economic Growth: Implications for the Japanese Banking Crisis
Get PDFAn endogenous growth model with financial intermediation is used to show how public deposit insurance and weak prudential regulation can lead to banking crises and permanent declines in economic growth. The impact of regulatory forbearance on investment, saving and asset price dynamics under perfect foresight are derived in the model. The assumptions of the theoretical model are based on essential features of the Japanese financial system and its regulation. The model demonstrates how banking and growth crises can evolve under perfect foresight. The dynamics for economic aggregates and asset prices predicted by the model are shown to be generally consistent with the experience of the Japanese economy and financial system through the 1990s. We also test our maintained hypothesis of rational expectations using asset price data for Japan over the 1980s and 1990s. An implication of our analysis is that delaying the resolution of banking crises adversely affects future economic growth.
"The Reality of Trade Credit and its Link to Bank Borrowing and Inventory: (2) Correlation Coefficients and Multiple Regressions" (in Japanese)
Get PDFThis is the last of the 4 discussion papers that, together with the Introduction and Summary paper (Miwa, 2010c), comprise the report of my recent investigation: "A Study of Financing Behavior of Japanese Firms with Firm-Level Data from Corporate Enterprise Quarterly Statistics - 1994~2009". In the third paper, I examined the place of trade credit in Japan. Here, I continue that exploration, and turn to trade credit patterns during the "Credit Crunch." I examine the correlation among various financial variables, including the ratio of specific variables to total assets (level variables), and the ratio of the change in specific variables to total assets (difference variables). The results are surprisingly stable over time, and similar between level variables and difference variables. The only stable relation is between payables and receivables. This appears in multiple regression studies both on level variables and on difference variables -- and appears for the size and t-value of regression coefficients and adj. R squares. Moreover, the results are stable over time, and similar between level variables and difference variables. Observers argue that Japan experienced a serious "Credit Crunch" during 1997-1999, but has avoided much of the confusion caused by the recent world-wide "financial crisis." The data I studied suggest the opposite. I find no indication of any serious "credit crunch" ten years ago, but find a drastic decrease both in payables and in receivables in firms of all sizes.
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