Endnotes

¹A chronology of developments in the crisis and policy responses is given in the Appendix [ PDF 46.3KB | 1 page ].

²See Nakaso (2001) for detailed accounts of the banking sector crisis and distress in the 1990s, particularly as viewed from the Bank of Japan's perspectives. See also Kawai (2005). Hoshi and Kashap (2008) describe this process in 1997 and 1998 in more detail.

³To put these measures in place, the Financial Function Stabilization Act was enacted in February 1998.

⁴These measures were enabled by the Financial Function Early Strengthening Act.

⁵In March 2000, the Long-term Credit Bank of Japan returned to the private sector as Shinsei Bank and in September 2000 Nippon Credit Bank was sold to a private investment consortium.

⁶Several steps were taken to revamp the Japanese supervisory and regulatory system. First, the Financial Supervisory Agency was created in June 1998, taking over the functions of supervision and inspection of the financial system from the Ministry of Finance (MOF). The MOF retained the function of policy planning and created a new Financial System Planning Bureau by consolidating the policy planning functions of the Banking and Securities Bureaus. Second, in December 1998, the Financial Reconstruction Commission (FRC) was established as a parent body of the Financial Supervisory Agency taking over oversight of the financial industry. Third, in July 2000, the Financial Services Agency (FSA) was established, merging the Financial Supervisory Agency and the Financial System Planning Bureau of the MOF. This completed the transfer of supervision, inspection, and policy planning functions from the MOF to an independent regulatory agency, which oversees banking, securities and insurance. Finally, in January 2001, the FRC was abolished in conjunction with the overall reorganization of the central government ministries, and the FSA became an external agency of the Cabinet Office, absorbing the crisis response function of the FRC.

⁷The government had created the RCC, an asset management company which was a fully owned subsidiary of DICJ, in 1999 by merging the Resolution and Collection Bank (RCB) and the Housing Loan Administration Corporation (HLAC), both created in 1996. The RCC was essentially a collection company that purchased, from failed institutions and mortgage lenders (jusen), collateralized NPLs, classified as “in danger of bankruptcy” or bankrupt,” focusing on smaller, nonviable firms.

⁸See Kawai (2005).

⁹The decision whether to recapitalize a troubled bank or consider it as a failed institution crucially depends on the viability of the business conducted by that particular bank.

¹⁰As indicated earlier, most of the public funds allocated to banks were recovered by 2008.

¹¹Among the 10 BHCs, Citigroup was required to add the largest amount of additional capital, US$92.6 billion, and the Bank of America followed with as much as US$46.5 billion.

¹²The first scenario assumed that the leverage ratio, measured as tangible common equity (TCE) over tangible assets (TA), returned to levels prevailing before the crisis (4%). In this case, capital injection would have to be some US$275 billion for US banks. The second scenario assumed a return of leverage to levels of mid-1990s (6%), in which case US banks would be required to raise additional capital of US$500 billion.

¹³The law related to past capital injections had been terminated in March 2008.

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