On the Real Effects of Bank Bailouts: Micro-Evidence from Japan

On the Real Effects of Bank Bailouts: Micro-Evidence from Japan

Mariassunta Giannetti, Andrei Simonov

Series number :

Serial Number: 
260/2009

Date posted :

October 01 2005

Last revised :

November 05 2018
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Keywords

  • Recapitalization • 
  • merger • 
  • banking crisis

Exploiting the Japanese banking crisis of the 1990s as a laboratory, we investigate the effects of bank bailouts on the supply of credit and on the valuations and the real performance of banks’ clients.

Consistent with recent theories, our findings indicate that the size of the capital injections relative to the banks’ initial financial conditions is crucial for the success of bank bailouts. Capital injections that are sufficiently large to reestablish bank capital requirements increase the supply of credit and spur investment. In contrast, not only do capital injections that are too small fail to increase the supply of credit, but they also encourage the evergreening of non-performing loans and favor investment by unviable “zombie” firms.

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Published in

Published in: 
Publication Title: 
AMERICAN ECONOMIC JOURNAL
Description: 
VOL. 5, NO. 1, pp. 135-67

Authors

Real name: 
Andrei Simonov