Bad Loans and Liquidation: The Case of Japan

30 Pages Posted: 16 Mar 2002

See all articles by Thomas Harr

Thomas Harr

University of Copenhagen - Department of Economics

Abstract

We study why Japanese banks have been reluctant to write off bad loans, and why authorities have postponed action. We argue that the combination of capital requirements and asymmetric information between banks and outsiders may have given banks incentives to roll over their bad loans. Furthermore, we show that if the market for collateral is illiquid, the single bank may be less willing to write off its bad loans when the number of banks suffering from bad loans is high. We argue that the government may have postponed action because of a short time horizon.

Keywords: Bad Loans, Liquidation, Japan

JEL Classification: G21, G28, G33

Suggested Citation

Harr, Thomas, Bad Loans and Liquidation: The Case of Japan. Available at SSRN: https://ssrn.com/abstract=302327 or http://dx.doi.org/10.2139/ssrn.302327

Thomas Harr (Contact Author)

University of Copenhagen - Department of Economics ( email )

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