Determinants, Costs, and Duration of Banking Sector Distress: The Japanese Experience in International Comparison

UCSC Department of Economics Working Paper No. 421

29 Pages Posted: 12 Dec 1998

See all articles by Michael M. Hutchison

Michael M. Hutchison

University of California, Santa Cruz - Department of Economics

Kathleen McDill

Federal Deposit Insurance Corporation (FDIC)

Date Written: November 1998

Abstract

This paper examines episodes of banking sector distress for a large sample of countries, highlighting the experience of Japan. We estimate a model that links the onset of banking problems to a set of macroeconomic variables and institutional characteristics. The model predicts a high probability of banking sector distress in Japan in the early 1990s, matching actual developments closely, and suggests that the Japanese episode fits a well-established pattern characterizing banking sector problems elsewhere. An empirical model explaining the output cost of banking sector distress is also investigated. The results indicate that output loss is smaller the more quickly banking sector problems are resolved and when exchange rate stability is maintained. Explicit deposit insurance also appears to lessen the output cost of banking sector distress. The real output loss to Japan of not resolving banking sector problems is estimated at almost one percent of GDP annually.

JEL Classification: G21, E44

Suggested Citation

Hutchison, Michael M. and McDill, Kathleen, Determinants, Costs, and Duration of Banking Sector Distress: The Japanese Experience in International Comparison (November 1998). UCSC Department of Economics Working Paper No. 421, Available at SSRN: https://ssrn.com/abstract=140615 or http://dx.doi.org/10.2139/ssrn.140615

Michael M. Hutchison (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Social Sciences I
Santa Cruz, CA 95064
United States
831-459-2600 (Phone)
831-459-5900 (Fax)

Kathleen McDill

Federal Deposit Insurance Corporation (FDIC) ( email )

550 17th Street NW
Washington, DC 20429
United States
202-898-3705 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
314
Abstract Views
1,482
rank
132,509
PlumX Metrics