Bad Loans and Loan Write-Offs

Abstract

In this paper, we investigate who bears the burden when writing off bad loans in Japan. Traditionally, Japanese main banks bore large burdens in saving their customers. We still find that some main banks bear a large burden in saving their customers. However, in most cases, main banks became very reluctant to bear large burdens when bailing out their customers. In the transition from the bank-based system to a market-based system, traditional implicit rules are collapsing dramatically. We suggest that companies supported by Industrial Revitalization Corporation of Japan may provide a new scheme for who bears the burden when writing off loans in Japan.