Prompt Recapitalization Act

Vaasavi Unnava ()
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Vaasavi Unnava: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/

Journal of Financial Crises, 2021, vol. 3, issue 3, 254-284

Abstract: In 1997, Japan's banks were in crisis due to hundreds of billions of dollars of non-performing real estate loans. In response, the government performed three rounds of capital injections in 1998, 1999, and the early 2000s. The capital injection of 1999, authorized by the Prompt Recapitalization Act, made as much as JPY25 trillion ($208 billion) available to financial institutions that applied, regardless of their capitalization. By the end of the injection window, 32 banks and trusts applied for and received JPY8.6 trillion ($71.6 billion) total in preferred shares and subordinated debts. The Act required banks to submit and adhere to restructuring plans in order to receive capital, leading to a series of mergers and acquisitions. However, differing accounting methodologies, evergreening, and double gearing allowed for systemic undercapitalization even with injections intended to help institutions meet reserve requirements.

Keywords: capital injection; double gearing; evergreening; Financial Reconstruction Commission; Japan; Japanese Financial Crisis; jusen; non-performing loans; Resolution and Collection Corporation; zombie lending (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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