This paper aims to answer this question: What were the causes of the severe slowdown in bank credit in Japan between 1999 and 2005? We test three credit crunch hypotheses, all together. The empirical results uncover the occurrence of a credit crunch that is attributed to bankers’ precautionary behavior rather than direct regulatory capital worries.

Keywords:
credit crunch, voluntary risk-reduction hypothesis, bank regulation policy, dynamic model, Japan
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© 2015 by the Regents of the University of California
2015
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