TY - CHAP
T1 - Financial Crises and the Central Bank
T2 - Lessons from Japan During the 1920s
AU - Shizume, Masato
N1 - Funding Information:
Masato Shizume would like to thank participants of the Session, “How Financial Networks become Vulnerable to Crises: a Global and Historical Perspective” in XVIIth World Economic History Congress in August 2015, Kyoto for helpful comments, and Seimeikai Foundation for financial support.
Funding Information:
Supported by the banking reforms and public funding, financial stability was finally restored. Figure 6.4 shows developments in the call rates, the representative interest rates for the short-term interbank transactions. Call rates remained high between the financial panic of 1922 and the Showa Financial Crisis of 1927, reflecting high risk premiums. A number of banks with high risk profiles, such as the BOT, tried to raise funds in the interbank market over that period. Aware of the credit risk of the distressed banks and instability in the financial market in general, lenders required high risk premiums. Call rates decreased substantially in the spring of 1927, as market participants gained confidence from the new Banking Act, the resolution of the financial crisis, and the BOJ’s liquidity provisioning.27,28
PY - 2018
Y1 - 2018
N2 - In this chapter, we look at the conduct of prudential policy in Japan during the 1920s. A series of financial crises following a boom during World War I marked the turning point for the emergence of prudential policy in Japan. An economic backlash after the war created mounting bad loans. After the Great Kanto Earthquake in 1923, the Bank of Japan (BOJ) introduced a special treatment facility for the devastated area. The BOJ hoped to rescue solvent but illiquid financial institutions, but the facility was abused by banks that were already in financial distress, paving the way toward a financial crisis. Banking panic spread nationwide in the spring of 1927. In 1928, the authorities introduced new arrangements for prudential policy with mergers and acquisitions, new types of regulations, and dual inspection by the Ministry of Finance and the BOJ. These arrangements restored financial stability while imposing a new constraint on monetary policy.
AB - In this chapter, we look at the conduct of prudential policy in Japan during the 1920s. A series of financial crises following a boom during World War I marked the turning point for the emergence of prudential policy in Japan. An economic backlash after the war created mounting bad loans. After the Great Kanto Earthquake in 1923, the Bank of Japan (BOJ) introduced a special treatment facility for the devastated area. The BOJ hoped to rescue solvent but illiquid financial institutions, but the facility was abused by banks that were already in financial distress, paving the way toward a financial crisis. Banking panic spread nationwide in the spring of 1927. In 1928, the authorities introduced new arrangements for prudential policy with mergers and acquisitions, new types of regulations, and dual inspection by the Ministry of Finance and the BOJ. These arrangements restored financial stability while imposing a new constraint on monetary policy.
KW - Central bank
KW - Financial crisis
KW - Japan
KW - Prudential policy
UR - http://www.scopus.com/inward/record.url?scp=85078809543&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85078809543&partnerID=8YFLogxK
U2 - 10.1007/978-981-10-6196-7_6
DO - 10.1007/978-981-10-6196-7_6
M3 - Chapter
AN - SCOPUS:85078809543
T3 - Studies in Economic History
SP - 131
EP - 148
BT - Studies in Economic History
PB - Springer
ER -