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Big Bang, Bailouts and Bank Failures : A Study of Japanese Government Intervention During the 1990’s Banking Crisis and Parallels with the 2007-09 US Subprime Mortgage Crisis

Choo, Felix (2009)
Centre for East and South-East Asian Studies, Lund University
Abstract
The current financial crisis the US and the world finds itself embroiled in has all of the
markings of a once-in-a-generation type of economic contraction. In times like these, it is
natural to search for comparable frames of reference; Japan’s own banking crisis during
the “lost decade” of the 1990’s provides significant parallels to the current state of affairs.
Given the severity and relative recentness of the Japanese crisis, the policy levers
implemented by the Japanese authorities in response hold considerable interest as US
policymakers struggle to grapple with the present crisis. The 1996 implementation of
Japanese Big Bang, nomenclature for sweeping financial sector reforms, bestowed upon
Japanese authorities significant... (More)
The current financial crisis the US and the world finds itself embroiled in has all of the
markings of a once-in-a-generation type of economic contraction. In times like these, it is
natural to search for comparable frames of reference; Japan’s own banking crisis during
the “lost decade” of the 1990’s provides significant parallels to the current state of affairs.
Given the severity and relative recentness of the Japanese crisis, the policy levers
implemented by the Japanese authorities in response hold considerable interest as US
policymakers struggle to grapple with the present crisis. The 1996 implementation of
Japanese Big Bang, nomenclature for sweeping financial sector reforms, bestowed upon
Japanese authorities significant powers to either bailout troubled financial institutions or
outright let them fail. The cases of Yamaichi Securities and the Long-Term Credit Bank
of Japan, two casualties of the Japanese crisis, are examined in the context of these
powers and compared to two similar US cases, Lehman Brothers and Fannie Mae.
Market responses from the Yamaichi and LTCB cases suggest that clearly communicated
actions taken by the Japanese authorities helped instill confidence and facilitate recovery
in the financial sector, despite criticism leveled at the time. As such, key takeaways from
the Japanese experience may provide a template for solving aspects of the current US-led
financial crisis. (Less)
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author
Choo, Felix
supervisor
organization
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Japan, US Subprime Mortage Crises, government intervention
language
English
id
1473801
date added to LUP
2009-09-10 15:11:53
date last changed
2009-09-10 15:11:53
@misc{1473801,
  abstract     = {The current financial crisis the US and the world finds itself embroiled in has all of the
markings of a once-in-a-generation type of economic contraction. In times like these, it is
natural to search for comparable frames of reference; Japan’s own banking crisis during
the “lost decade” of the 1990’s provides significant parallels to the current state of affairs.
Given the severity and relative recentness of the Japanese crisis, the policy levers
implemented by the Japanese authorities in response hold considerable interest as US
policymakers struggle to grapple with the present crisis. The 1996 implementation of
Japanese Big Bang, nomenclature for sweeping financial sector reforms, bestowed upon
Japanese authorities significant powers to either bailout troubled financial institutions or
outright let them fail. The cases of Yamaichi Securities and the Long-Term Credit Bank
of Japan, two casualties of the Japanese crisis, are examined in the context of these
powers and compared to two similar US cases, Lehman Brothers and Fannie Mae.
Market responses from the Yamaichi and LTCB cases suggest that clearly communicated
actions taken by the Japanese authorities helped instill confidence and facilitate recovery
in the financial sector, despite criticism leveled at the time. As such, key takeaways from
the Japanese experience may provide a template for solving aspects of the current US-led
financial crisis.},
  author       = {Choo, Felix},
  keyword      = {Japan,US Subprime Mortage Crises,government intervention},
  language     = {eng},
  note         = {Student Paper},
  title        = {Big Bang, Bailouts and Bank Failures :  A Study of Japanese Government Intervention During the 1990’s Banking Crisis and Parallels with the 2007-09 US Subprime Mortgage Crisis},
  year         = {2009},
}