Document Type
Case Study
Case Series
Broad-based Capital Injections
JEL Codes
G01, G28
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 ¥25 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 ¥8.6 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.
Recommended Citation
Unnava, Vaasavi
(2021)
"Prompt Recapitalization Act,"
Journal of Financial Crises: Vol. 3
:
Iss. 3, 254-284.
Available at:
https://elischolar.library.yale.edu/journal-of-financial-crises/vol3/iss3/15
Date Revised
2021-12-15
Included in
Economic History Commons, Economic Policy Commons, Finance and Financial Management Commons, Policy Design, Analysis, and Evaluation Commons, Public Policy Commons