Does a large loss of bank capital cause Evergreening? Evidence from Japan

Wako Watanabe

doi:10.1016/j.jjie.2010.01.001

Does a large loss of bank capital cause Evergreening? Evidence from Japan

Wako Watanabe

Faculty of Business and Commerce

Research output: Contribution to journal › Article › peer-review

17 Citations (Scopus)

Abstract

Using the real estate lending share of the bank's loan portfolio at the peak of the land-price bubble as an instrument for bank capital, we identify the impact of capital adequacy on the allocation of bank lending under the Basel regulatory framework. We find that, in Japan, a large loss of bank capital caused by the regulator's excessively tough stance towards banks not only induced the contraction of the bank lending supply but also the banks' reallocation of their lending portfolios to financially unhealthy industries with a higher concentration of non-performing loans.

Original language	English
Pages (from-to)	116-136
Number of pages	21
Journal	Journal of The Japanese and International Economies
Volume	24
Issue number	1
DOIs	https://doi.org/10.1016/j.jjie.2010.01.001
Publication status	Published - 2010 Mar 1

Keywords

Bank capital
Evergreening
Instrumental variable
Real estate lending

ASJC Scopus subject areas

Finance
Economics and Econometrics
Political Science and International Relations

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10.1016/j.jjie.2010.01.001

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