Responding to the Global Financial Crisis -Lessons for the West from Japan

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The global financial crisis of 2007-2008 has spurred a variety of policy responses around the globe. Many of these policies have been hotly debated. The debates resemble those of Japan in the late 1990s, when opinions on the proper policy response to Japan's own banking crisis were sharply divided. In this study, we consider the lessons - positive and negative - Japan's experience provides to other countries now coping with the ongoing subprime crisis. In particular, we examine the effectiveness of the capital injections into the US banking system, comparing the effects with Japan's own experiment with bank recapitalization in the late 1990s. We then explore the effects of bank size on bank efficiency and examine the impact of the hastily arranged bank mergers on bank performance.