DEPOSIT GUARANTEES AND THE BURST OF THE JAPANESE BUBBLE ECONOMY

This paper examines the current status of deposit guarantees in Japan and how they have functioned during the burst of the bubble economy in the first half of the 1990s. During this period, the Ministry of Finance has had to depart from its “no failure” policy and declare depository institutions insolvent. The resources of Japan's most important deposit insurance agency—the Deposit Insurance Corporation—were exhausted as of late 1995. The other deposit insurance agency for small specialized depositories also is technically insolvent. Many of the problems that Japan's deposit guarantee system experienced are similar to those experienced in the United States during the 1980s.