Capital Positions of Japanese Banks

33 Pages Posted: 1 Mar 2001 Last revised: 18 Oct 2021

See all articles by Edward J. Kane

Edward J. Kane

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Haluk Unal

University of Maryland - Robert H. Smith School of Business

Asli Demirgüç-Kunt

World Bank

Date Written: July 1990

Abstract

This paper measures and analyzes two types of hidden capital at Japanese banks: (1) the net undervaluation present in accounting measures of on-balance-sheet assets and liabilities and (2) the net economic value of off-balance-sheet items. A model is constructed that explains changes in both types of capital as functions of holding that explains changes in both types of capital as functions of holding-period returns earned in Japan on stocks, bonds, yen, and real estate. The model is applied to annual data covering 1975-1989 and a four-class size/charter partition of the Japanese banking system. For each type of hidden capital and each class of bank, the model develops estimates of the stock-market, interest-rate, foreign-exchange, and real estate sensitivities of returns to bank stockholders. Only the stock-market sensitivities prove significant at five percent. This finding leads us to investigate what happens when we analyze Japanese bank stock returns by means of stationary and split-sample market models. Timeseries regressions show that very large Japanese banks have developed stockmarket betas in excess of two and that the value of a bank's beta has come to increase with measures of its size and accounting leverage. Future research will investigate the sensibility of our results to different ways of pooling data from individual banks and to more-sophisticated methods for estimating various parameters. We also plan to extend the analysis by imbedding it in a model of how variations in bank-customer contracting arrangements in Japan affect the returns that can be earned by bank stockholders.

Suggested Citation

Kane, Edward J. and Unal, Haluk and Demirgüç-Kunt, Asli, Capital Positions of Japanese Banks (July 1990). NBER Working Paper No. w3401, Available at SSRN: https://ssrn.com/abstract=262095

Edward J. Kane (Contact Author)

Boston College - Department of Finance ( email )

Fulton Hall
Chestnut Hill, MA 02467
United States
520-299-5066 (Phone)
617-552-0431 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Haluk Unal

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2256 (Phone)
301-405 0359 (Fax)

Asli Demirgüç-Kunt

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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