Regulatory responses to banking crisis: Lessons from Japan

Imai, Masami

doi:10.1016/j.gfj.2018.01.009

Cited by 4 publications

(3 citation statements)

References 31 publications

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“…Based on these findings, Imai (2019) concluded that it was safe to say that the Japanese government's forbearance policy benefitted weak banks and their unviable borrowers at the expense of the public. Following this context, Imai (2019) regarded the Financing Facilitation Act (which they called "the debt moratorium law") as an example that Japanese government reverted back to the habit of using its discretion to soften prudential banking regulation after the Lehman shock.…”

Section: Literature Relating To the Financing Facilitation Actmentioning

confidence: 99%

“…After the law was enacted, it was said that financial institutions were very flexible in complying to the changing of conditions. However, because financial institutions were lightly complying to the request for changing loan conditions and were not making serious efforts to support revitalization, there is criticism that it did not become an opportunity for companies to substantially reform their businesses, and that there was moral hazard on the company's side (e.g., Hoshi 2011;Harada et al 2015;Imai 2019). That is, companies that were allowed to change loan terms were likely to feel that financing could be managed in the short-term, and so they did not work towards reforms in earnest.…”

Section: Introductionmentioning

confidence: 99%

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The Effects of the Financing Facilitation Act after the Global Financial Crisis: Has the Easing of Repayment Conditions Revived Underperforming Firms?

Yamori

2019

JRFM

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After the global financial crisis, the Japanese government enacted the Financing Facilitation Act in 2009 to help small and medium-sized enterprises (SMEs) that had fallen into unprofitable conditions. Under this law, when troubled debtors asked financial institutions to ease repayment conditions (e.g., extend repayment periods or bring down interest rates), the institution would have the obligation to meet such needs as best as possible. Afterward, the changing of loan conditions began to be utilized often in Japan as a means for supporting underperforming companies. Although many countries employed various countermeasures against the global financial crisis, the Financing Facilitation Act was unique to Japan. However, there is criticism that it did not become an opportunity for companies to substantially reform their businesses, and that there was a moral hazard on the company’s side. This paper analyses whether the easing of repayment conditions revived underperforming firms and who were likely to recover, by using the “Financial Field Study After the End of the Financing Facilitation Act”, carried out by the Research Institute of Economy, Trade and Industry (RIETI) in Oct 2014. We found that the act was successful in that about 60% of companies whose loan conditions were changed recovered their performance after the loan condition changed, and the attitude that financial institutions had towards support was an important factor in whether performance recovered or not. In sum, the act might be effectual when financial institutions properly support firms, although previous studies tend to emphasize its problems.

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Section: Literature Relating To the Financing Facilitation Actmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Effects of the Financing Facilitation Act after the Global Financial Crisis: Has the Easing of Repayment Conditions Revived Underperforming Firms?

Yamori

2019

JRFM

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“…Por fim, a atuação das corretoras independentes reduziu a disciplina de mercado pelos três mecanismos, pois parâmetros de risco como tamanho dos depósitos e capitalização passaram a apresentar comportamento oposto à disciplina de mercado para os três mecanismos. Por esta razão, afirma-se que a disciplina de mercado só pode ser eficiente em um adequado "sistema de incentivos", que ocorre quando os depositantes efetivamente sofrem perdas na hipótese de default de uma instituição financeira (Imai, 2019;World Bank Group, 2019 Adicionalmente, Demirgüç-Kunt e Huizinga (2004) afirmam que a disciplina de mercado e a supervisão bancária são os mecanismos existentes que podem restringir uma excessiva tomada de risco por instituições financeiras. Bliss (2004) destaca que a disciplina de mercado está baseada no conflito principal versus agente inerente à separação entre os responsáveis pela governança dos bancos (administração) e os fornecedores de capital, incluindo acionistas e detentores de dívidas, dentre os quais incluem-se os depositantes.…”

Section: Principais Resultados E Conclusõesunclassified

Seguro de depósitos e intermediários financeiros: impactos na disciplina de mercado da indústria bancária brasileira

Ohlson¹

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Market discipline refers to the role of depositors and other providers of funds in monitoring banks' risk taking and, based on this monitoring, impose penalties on them. The mechanisms of market discipline, that is, the ways in which depositors can penalize riskier banks, are three: (i) the cost of borrowing, demanding higher interest rates from riskier banks; (ii) the amount of deposits, withdrawing resources from riskier banks; and (iii) maturity, keeping their deposits in shorter terms the greater the perceived risk. This study aims to examine the phenomenon of market discipline in Brazil and also whether the increase in deposit insurance coverage in 2013 and the role of financial intermediaries in the funding market changed this discipline. The database comprises accounting information of Brazilian banks from 2010 to 2017. The parameters were calculated using the Systemic Generalized Method of Moments (GMM-Sys). Based on the analyses performed, it was concluded that in Brazil there is evidence of market discipline through the cost of funding and maturity, with the size of banks and their capitalization as the main disciplining factors. Deposit insurance has reduced market discipline for both mechanisms, while intermediaries have decreased the size and capitalization advantages of banks. The results did not demonstrate the existence of market discipline through the quantity mechanism. Brokerage firms also reduced the size and capitalization advantages of this mechanism. However, significant indicators in the market discipline literature, mainly related to banks' credit portfolios, were not relevant in the Brazilian market, indicating that discipline can be enhanced. The results were similar in the analysis excluding "too-big-to-fail" banks, with slightly higher parameters, indicating that the discipline is stronger for smaller banks. This work can help regulators and banks to understand the deposit market, the participation of depositors, insurance and intermediaries, contributing to the definition of insurance coverage, the incentives for new intermediaries and the design of supervisory procedures.

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Rolle der Klein- und Mittelunternehmen für die japanische Kreditwirtschaft

Schnabl

2020

Japans Banken in Der Krise

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Regulatory responses to banking crisis: Lessons from Japan

Cited by 4 publications

References 31 publications

The Effects of the Financing Facilitation Act after the Global Financial Crisis: Has the Easing of Repayment Conditions Revived Underperforming Firms?

The Effects of the Financing Facilitation Act after the Global Financial Crisis: Has the Easing of Repayment Conditions Revived Underperforming Firms?

Seguro de depósitos e intermediários financeiros: impactos na disciplina de mercado da indústria bancária brasileira

Rolle der Klein- und Mittelunternehmen für die japanische Kreditwirtschaft

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