Journal Article

Financial regulation and banking sector performance: a comparison of bad loan problems in Japan and Korea

Abstract: We estimate the bad loan rate in Japan and Korea for 1973-1992 using data on defaults on notes issued by the corporate sector. This method exploits institutional features common in both countries which suggest a close linkage between default on notes and default on bank borrowing. Our main findings are as follows. First, the pattern of the estimated bad loan rate series generally conforms to past business cycle patterns in both countries. Second, the bad loan rate is substantially higher in Korea than Japan. Lastly, a much tighter linkage is observed for Japan between the bad loan rate and a set of plausible economic explanatory variables. We offer some interpretation for these findings.

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Economic Review

Publication Date: 1994

Pages: 18-29

Order Number: 2