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Finance and Investment: The European Case$
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Colin Mayer, Stefano Micossi, Marco Onado, Marco Pagano, and Andrea Polo

Print publication date: 2018

Print ISBN-13: 9780198815815

Published to Oxford Scholarship Online: January 2018

DOI: 10.1093/oso/9780198815815.001.0001

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Same Story, Different Place?

Same Story, Different Place?

Post-Crisis Recapitalization of Banks in Japan and Europe

(p.137) 7 Same Story, Different Place?
Finance and Investment: The European Case

Viral V. Acharya

Tim Eisert

Christian Eufinger

Christian Hirsch

Oxford University Press

This chapter compares the recapitalizations of the Japanese banking sector in the 1990s with those in the ongoing European debt crisis. The analysis points to four main policy implications. First, recapitalizing banks by insuring or purchasing troubled assets alone is not likely to solve the problem of banks’ weak capitalization, as this measure is not able to adjust the extent of the recapitalization to the banks’ specific needs. Second, the amount of the recapitalization should be based on actual capital shortages and not risk-weighted assets to avoid banks decreasing their loan supply. Third, banks should face restrictions regarding the amount of dividends they are allowed to pay out. Finally, banks must be induced to clean up their balance sheets and reduce the amount of bad (non-performing) loans to rebuild confidence in the European banking system.

Keywords:   bank recapitalization, Japan, Europe, non-performing loans, global financial crisis

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