Deposit Insurance Regulatory forbearance and Economic Growth: Implications for the Japanese Banking Crisis

August 1, 2005

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Kenneth Kletzer, and Robert Dekle. Deposit Insurance Regulatory forbearance and Economic Growth: Implications for the Japanese Banking Crisis, (USA: International Monetary Fund, 2005) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

An endogenous growth model with financial intermediation demonstrates how deposit insurance and prudential regulatory forbearance lead to banking crises and growth declines. The model assumptions are based on features of the Japanese financial system and regulation. The model demonstrates how banking and growth crises can evolve under perfect foresight. The dynamics for economic aggregates and asset prices predicted by the model are shown to be generally consistent with the experience of the Japanese economy and financial system through the 1990s. We also test our maintained hypothesis of rational expectations using asset price data for Japan over the 1980s and 1990s.

Subject: Bank credit, Banking, Banking crises, Deposit insurance, Financial crises, Financial institutions, Loans, Money, Stocks

Keywords: Bank credit, Bank dividend, Bank equity ratio, Bank financing, Banking crises, Banking sector, Capital stock, Deposit insurance, East Asia, Economic growth, Insurance liability, Japanese economy, Loans, Rate of interest, Stocks, Withdrawal demand, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/169
Stock No:

WPIEA2005169
ISBN:

9781451861884
ISSN:

1018-5941

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