Document Type

Case Study

Case Series

Broad-based Capital Injections

JEL Codes

G01, G28


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 ¥13 trillion ($103 billion) available to financial institutions that applied. By the end of the injection window, 21 banks and trusts applied for and received ¥1.8 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.

Date Revised