| Publication |
2014.
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| Summary/Abstract |
This article explores why the Japanese government did not decisively intervene on behalf of bank bailouts at the early stage of the banking crisis of 1997-98 and investigates the institutional and political context behind the use of fiscal money for bank bailouts in 1997-98, 1998-99, and 2001-05. In contrast with prevailing views, which emphasize the conflicts of interest or differences in policy preferences between politicians and bureaucrats and their captured nature either by bankers' special interests or political/bureaucratic interests, this article argues that Japanese policymakers shared a congruent policy preference - that is, minimizing the disruptions in the existing institutional arrangement in government-bank-firm relations and this congruence in policy preference (or 'cognitive capture') compelled the government to take a creditor-centered approach to the banking problem - i.e., letting banks resolve their own problems. It also argues that a strong political leadership that can break with the 'cognitive capture' and sustain government's resolute commitment to solving the nonperforming loan problem is an essential factor for successful bank restructuring.
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