Japan Financial Crisis - California State University, Los ：日本金融危機加利福尼亞州立大學(xué)美國

1、Japan Financial CrisisBy: Sander ChauWinslow HanPostwar Financial System Bank-based system with underdeveloped stock and bond market. Stable system no threat of new entry Safe but inefficient system Postwar system could not last forever Banks grew too large but restricted by many restrictions4 Basic

2、 Causes of Bank Difficulties Failure to create prudential regulatory system Macroeconomic mismanagement Effects of Globalization High rate of financial innovationPrudential Regulatory System Deregulation of the system took place without creating a effective system Generates competition Profit no lon

3、ger guaranteed5 Macroeconomic Policy Mistakes Interest Rates were at postwar lows Not easing monetary and fiscal policies in the early 90s Relying excessively on easy monetary policies in the mid 90s Fiscal Stimulus through supplementary budgets in the mid 90s, too little too late. Wrong optimistic

4、forecast for 97Effects of Globalization Economic and financial policies subject to foreign pressures Worlds largest creditor nation: Japanese financial institutions engaged in foreign lending and portfolio investment Flourishing of a free global capital market Big Bang deregulation creates competiti

5、on in Japan home market from foreign financial institutionsFinancial Technology Innovation Wide range of new financial derivatives Mostly American and some European players Japanese banks unable to learn The most capable Japanese are hired away by foreign firmsBanking Sector Problems Mergers and fai

6、lures have left Japan with 7 major banks Low profitability for more than 10 yrs Banks depend too heavily on revenue from lending Government sponsored financial institutions EvergreeningComparison to US Banks Interest Margin of Japanese banks 1.2% compared to 3.3 to 3.5% of assets “Other Revenue” 38%

7、 revenue from lending operations compared to US 73% of lending revenueGovernment Sponsored Institutions Japan Post: post office and largest deposit-taking institution in the world Heavily subsidized 9 times the branches of all city banks Same rate on deposits, explicit government guarantee, no maint

8、enance fee, lower rate on lending, no prepayment penalties Strong government resistance to address this problem and no public recognition of the losses that these government institutions have made with explicit subsidiesTable 1: An Overview of the Japanese Financial System Number Of Total Assets Dep

9、osits OutstandingLoans and Discount Outstanding Institutions BranchesEmployessTrillion % of GDPTrillionTrillionBanks City Banks (Consolidated)7285310484741081.9260238Others22712221238760436.487.2289.2259Cooperative Financial Institutions24441119717370939478.8317154Non-depository financial institutio

10、ns Life Insurance431580738086418436.7047Other Insurance59486987501336.604Remaining293225694898951900Public Financial Institutions Postal Savings1247736242224248.32390.7Government Financial Institution83111125016633.20159Total Financial System30827428711542511960.4391.71105.2861.7Bank Problem Example

11、 1.1 trillion yen of public funds injected into Asahi and Daiwa Banks March 2003: Asahi and Daiwa Banks merge into Resona Bank (5th largest) Resona granted another 1.96 trillion yen September 2003: Resona records loss of 1.76 trillion yen for period between Mar-Sept 03 (90% capital provided, disappe

12、ars) Regulators principal aim to avoid large bank failures Little attention to future viability of recapitalized banks Regulators did not systematically force other banks to reassess their risk ratings Gives little incentive for Banks to restructureBook Value and Adjusted Capital in the Japanese Ban

13、king SectorMar-89Mar-91Mar-93Mar-95Mar-97Mar-99Mar-01Mar-03Market Value of Shares A97.177.756.45254.147.144.523.2Book Value of Shares B23.233.134.539.842.942.744.323.2Reported Book Value of Bank Capital C22.530.231.832.328.533.736.724.8Defered Tax Assets D0.00.00.00.00.08.47.310.6Estminated Underres

14、erving EN/AN/AN/AN/A154.67.65.4Adjusted Capital C+ (A-B)*.05)-D-E66.85744.939.620.223.421.98.8Equity Capital Held by the Govt0.00.00.00.00.06.37.17.3Nikkei225 Stock Price Average328392629218591151401800815887130007873Conclusion Cumulative loan losses by banks since 1990 is 91.5 trillion yen (18% of current Japanese GDP) Tax payer burden very like