Financial Functions Stabilization 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, 285-314

Abstract: In 1990, the asset-pricing bubble in Japan peaked and began a steady decline. Over the next seven years, a series of bank failures induced the Japanese government to introduce the first of a series of capital injections in 1998, 1999, and 2004. The capital injection of 1998, authorized by the Financial Functions Stabilization Act, made JPY13 trillion ($103 billion) available to financial institutions that applied. By the end of the injection window, 21 banks and trusts applied for and received JPY1.8 trillion ($13.5 billion) in subordinated debt and loans and preferred shares. While there were no limits on compensation for management, the Act restricted dividend payments and required banks to submit restructuring plans. However, lack of oversight over bank balance sheets to pursue risk-based injection strategies, regulatory forbearance, and banks' application for capitalization below balance sheet needs prevented complete recapitalization of the banks and led to a second recapitalization scheme one year later.

Keywords: capital injection; Financial Crisis Resolution Committee; Japanese Financial Crisis; Japan; jusen; regulatory forbearance; Resolution and Collection Bank (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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