Non-Performing Assets of Banks and Financial Intermediation: Experiences of Japan in the Inter-War Period.

The Japanese banks are now holding a lot of non-performing assets as asset prices fall. The Japanese banks were also holding a large amount of non-performing assets in the inter-war period. The experiences of Japan in the inter-war period may provide useful lessons for the problem of today's Japanese banks. In this paper, we consider what effects the non-performing assets of the Japanese banks had on the financial intermediation in the inter-war period. In addition, we analyze economic meanings of those effects. we can infer from several evidences that there were the deterioration of financial intermediation in the inter-war period. According to the experiences in the inter-war period, we can also infer that the prompt action in required collection and required redemption of non-performing assets might be effective in the recovery of financial intermediation.