Abstract
After almost 20 years of prosperity, the Japanese economy began to stagnate in the mid- 1970s. A phenomenal bubble economy was created by the end of the 1980s. After the bubble period, enormous bad debts were created in Japanese banks. As of 1999, a sum of 7.3 trillion yen of taxpayers’ money was infused into the major banks. However, this infusion represents only the beginning of a solution. It is questionable whether or not the banks can survive severe worldwide financial competition. Japan’s banking policy administration, accused of failing to take effective measures against the deterioration of its banking system, is weathering heavy criticism. In the August 1995 annual report of the International Monetary Fund (“IMF”), Japan’s banking policy administration was criticized for failing to take effective measures to revive the deteriorating banking system. It was further suggested that “waiting would not recover the loss, but rather increase it,” and Japan was asked to take speedy action to correct the problems in its banking sector. The report also stated that (1) market mechanisms that were supposed to help depositors and investors in selecting banks were not working because of the insufficient disclosure of operating information by the banks, and (2) it was necessary for the stockholders of the problematic banks to demand that the banks establish a more clear-cut rule to specify how the necessary funds, including public funds, be secured.