Japan's Experience with Deposit Insurance and Failing Banks: Implications for Financial Regulatory Design?

Columbia Law School, Center for Law and Economic Studies, Working Paper No. 148

44 Pages Posted: 19 Oct 1999

Multiple version iconThere are 2 versions of this paper

Date Written: March 1999

Abstract

This paper examines three decades of Japanese experience with deposit insurance and failing banks, and analyzes the implications of that experience for bank safety net reform in other countries. To date, the literature and policy debate on deposit insurance have been heavily colored by U.S. banking history and focus almost exclusively on explicit deposit protection schemes. Analysis of Japan's safety net experience suggests that (a) deposit insurance, for all its flaws, is superior to the real-world alternative -- implicit government protection of depositors and discretionary regulatory intervention in bank distress, (b) a well designed explicit deposit insurance system which includes a credible bank closure policy is the starting point for the design of effective private alternatives to a government-run safety net, and (c) the trend toward greater institutionalization of the Japanese safety net -- culminating in recent legislation to address the financial crisis -- reflects increased political competition and greater emphasis on legal as opposed to reputational systems of economic ordering in that country.

JEL Classification: G21, K23, N25, N45

Suggested Citation

Milhaupt, Curtis J., Japan's Experience with Deposit Insurance and Failing Banks: Implications for Financial Regulatory Design? (March 1999). Columbia Law School, Center for Law and Economic Studies, Working Paper No. 148. Available at SSRN: https://ssrn.com/abstract=163382 or http://dx.doi.org/10.2139/ssrn.163382

Curtis J. Milhaupt (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
531
Abstract Views
2,551
rank
51,715
PlumX Metrics