japenese financial crisis - spjcm
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A overview of the Japanese financial crisis.TRANSCRIPT
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BY
ANURAG GUPTA
NITI SAINI
SUDHANSHU RAWAL
All logos are trademarks and copyrights , this presentation is made by students of SPJCM for educational purpose.
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Early Stage - Before mid 1994
Beginning of Crisis – mid 1994 to 1996
Financial Crisis of 1997
Financial Crisis of 1998
Management
Causes
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No Financial Crisis post war till 1994
Financial deregulation started in 1970
Deposit Insurance Law
- Payoff – Y10 million per depositor
- Financial Assistance
Larger banks were perceived to be protected
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Credit cooperatives - Tokyo Kyowa and Anzen failed
Financial Assistance from DIC
- No financial institution for claim
- Legal limit to payoff
Tokyo Kyoudou Bank or TKB established
- Y20 billion – Bank of Japan
- Y20 billion – Private Financial Institutions
Collective Approach - Hougacho
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July 95 – Cosmo Credit Failed
Aug 95 – Hyogo Bank & Kizu Credit Co-op
Hougacho again followed
- Cosmo transferred to TKB
- Hyogo - Midori Bank, Y80 bn share capital
- Kizu - losses exceeded Y100 billion
- transferred to RCB
- Deposit Insurance Law amended
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1995 – 1996 Jusen became major issue
Aggregate losses of Y6,410 billion
Tax Payers money was used
Deposit Insurance Law amended
TKB reorganized to RCB
- RCB given wider role
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Nippon Credit Bank(NCB) restructuring in April- Assets of Y15 trillion
- Heavily exposed to real estate and large NPL’s
- Bank of Japan inducted Y290 billion
- December 1998 NCB failed and nationalised
Hokkaido Takushoku Bank(HTB) failed in November- Loans soured after bubble burst
- Merger with regional bank
- Deposit withdrawals accelerated
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Sanyo Securities filed with Tokyo district Court for reorganization
- defaulted on repayment of unsecured call money
- Bank of Japan two-way operation
Central Point – A default by one Financial Institution, whether a bank or a non-bank, could have developed into major disruption, especially when overall financial system was fragile
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Yamaichi Securities collapsed
- MOF and BOJ understanding to use
Compensated Fund for Deposited Securities
- BOJ faced credit risk
- who would bear final cost still unresolved
Tokuyo City Bank failed
- Rumor banks were on brink of collapse
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Legislation to use Public Funds – Y30 trillion
Financial Crisis Management Committee
- No supervisory Power
All major banks collectively applied for Capital Injection – Y1.8 trillion
Long Term Credit Bank failed
- Assets of Y26 trillion
- Sumitomo Trust bank – Size of NPL’s
- Derivatives Portfolio
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Financial Reconstruction Law
- Failed bank under Financial Reorganization
Administration
- Temporarily Nationalized
- Bad Loans were removed
- Losses covered by shareholders and DIC
- Feb 2000 LTCB purchased by New LTCB
partners
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Financial Reconstruction Law
Financial Function Early Strengthening Law
Financial Reconstruction Committee(FRC)
Financial Supervisory Agency
Available public funds doubled
FRC injected Y7.5 trillion in march 99
Tier 1 capital – preferred stock
Unrealized capital losses and potential losses
Required banks to submit plans for improving profitability
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RCB reorganized to RCC for removing bad loans
Securitization of bad loans using SPC’s
As of July 2002 major banks consolidated to 5 large financial groups
Deposit Insurance Law amendment
- current deposits and ordinary deposits would be
fully protected until March 2003
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Problem of non-performing Loans
Negative Impact on economy
- Corporate sector
- Economy in recession
- Securitisation became available in late 90’s
Insufficient Provisioning
- 97-reporting requirement to MOF abolished
- Self assessment of loan portfolio
- Further guidelines in 99 – Profitability reduced
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Inadequate Market Discipline
- Public disclosure of NPL’S non existent
- Moral Hazard
- 1999 – Comprehensive disclosure requirement
Deterioration of Bank’s Capital Positions
- Low profitability
- New stock impossible
- Capital injection using public funds not easily
available
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