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Document Type

Case Study

Abstract

Though the Japanese real estate and stock market bubble burst in the early 1990s, the ensuing financial crisis in Japan did not reach a systemic level until 1997, when four large financial institutions failed in a single month. Because of their heavy exposure to real estate and equity markets, Japanese banks had a nonperforming loan (NPL) problem, which was prolonged, and private sector estimates of the scale of the NPL problem differed significantly from the official estimates. In response, the Japanese government created multiple asset management companies; the Resolution and Collection Corporation (RCC) was the result of the merger of two narrowly focused, semi-governmental agencies. The RCC, which began operating in 1999, was tasked with purchasing NPLs from both solvent and insolvent financial institutions. In 2001, its scope was expanded to include corporate restructuring and revitalization. Though there was no specified sunset date for insolvent institutions, the purchase window for solvent financial institutions ended on March 31, 2005. The RCC purchased ¥4,004 billion (approximately $37 billion) in bad debt (book value) at a purchase price of ¥353 billion from solvent institutions by March 2005, and it collected ¥642 billion by March 2008. The RCC purchased ¥6,366 billion in assets (estimated ¥29,000 billion book value) from failed financial institutions and recovered ¥7,143 billion by the end of March 2008. Though the RCC is operational as of today, its operations are no longer focused on resolving the 1990s crisis.

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