Document Type

Case Study

Case Series

Broad-based Capital Injections

JEL Codes

G01, G28


After the Japanese Financial Crisis in 1990s, the non-performing loan problem was mitigated in the large Japanese banks but persisted in the regional banking system. By 2004, regional banks accounted for half of all non-performing loans. In 2004, the government passed the Act on Strengthening Financial Functions (ASFF), legislation for capital injections to address the non-performing loan problem. Aimed at regional banks, the ASFF secured ¥2 trillion in capital, with various eligibility restrictions and requirements, such as a rigorous debt restructuring plan. As the Japanese economy and the financial system encountered multiple external shocks, the government amended the Act several times. Following the shocks, including the Global Financial Crisis in 2008, the Great East Earthquake in 2011, Brexit in 2016, the COVID-19 outbreak of 2020, and the COVID-19 recession in 2021, the government expanded the ASFF’s scale, extended end dates, and relaxed eligibility and debt restructuring requirements. The ASFF—originally established to recover the capital adequacy ratios for banks—eventually turned into a macroprudential tool through amendments that made the application more accommodative (Sakaguchi 2020, 3). In total, by the end of September 2020, over 30 financial institutions applied and received ¥684.04 billion in capital injections in the form of preferred shares, subordinated loans and debt, preferred investments, and trust beneficiary rights. ¥200.5 billion in capital has been recovered to date (DICJ 2020a, 62–63).

Date Revised