The Lehman Shock and Its Influence on Banking Supervision Policy: 2008–13

Mitsuhiko Nakano
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Mitsuhiko Nakano: Momoyama Gakuin University (St. Andrew’s University)

Chapter 3 in Financial Crisis and Bank Management in Japan (1997 to 2016), 2016, pp 67-105 from Palgrave Macmillan

Abstract: Abstract Banks changed their behaviours markedly in the early 2000s to reduce their risk exposure and thereby cope with deflation. The Bank of Japan (BOJ) introduced an unconventional monetary policy to reverse the deflationary situation and to inspire economic activity, but banks did not respond to the policy. Instead, they chose to reduce their risk exposure. The reasons for the banks’ passive attitude can be inferred from the following. The first was that the banks hesitated to take risks because of the harsh experience of settling NPLs just a few years before. The second was that the banks were unable to foresee a marked improvement in the Japanese economy in the future. The third one was that they were unable to play a role as a financial intermediary because they lost an interest rate tool for selecting borrowers under the extreme monetary easing environment. When the twin catastrophes of the Lehman Shock and the Great East Japan Earthquake hit the Japanese economy successively, the economy was suddenly thrown again into a deflationary spiral.

Keywords: Interest Rate; Monetary Policy; Consumer Price Index; Money Stock; Japanese Economy (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-1-137-54118-5_3

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DOI: 10.1057/978-1-137-54118-5_3

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