Working Paper: NBER ID: w14401
Authors: Takeo Hoshi; Anil K. Kashyap
Abstract: During the financial crisis that started in 2007, the U.S. government has used a variety of tools to try to rehabilitate the U.S. banking industry. Many of those strategies were used also in Japan to combat its banking problems in the 1990s. There are also a surprising number of other similarities between the current U.S. crisis and the recent Japanese crisis. The Japanese policies were only partially successful in recapitalizing the banks until the economy finally started to recover in 2003. From these unsuccessful attempts, we derive eight lessons. In light of these eight lessons, we assess the policies the U.S. has pursued. The U.S. has ignored three of the lessons and it is too early to evaluate the U.S. policies with respect to four of the others. So far the U.S. has avoided Japan's problem of having impaired banks prop up zombie firms.
Keywords: Banking; Recapitalization; Financial Crisis; Japan; US
JEL Codes: E44; G18; G28; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Japanese government's recapitalization efforts (G28) | bank stability (G28) |
| lack of sufficient recapitalization in Japan (F65) | ongoing financial instability (F65) |
| U.S. policies (I28) | prevention of 'zombie firms' (G33) |
| comprehensive recapitalization program (G32) | address capital shortages (O16) |