Financial Sector Profitability and Double-Gearing

Topics:
Equity,
Investment Strategy
Tags:
Banking,
National Bureau Of Economic Research,
Financial Services,
Financial Accounting,
Financial,
Finance,
Deflation,
Currency & Foreign Exchange,
Business Operations,
Banking Industry,
...
Source:
National Bureau of Economic Research

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Overview: This paper shows that Japan will not be able to have a viable banking sector without stopping deflation. The banking industry has not shown a profit since fiscal 1993 (ended March 1994) if one excludes capital gains from stock and real estate portfolios. It quantifies the financial condition of the sector and shows that interest margins have been too low to cover the increase in loan losses brought about by the weak economy. Banks cannot raise margins for several reasons: competition with subsidized government sponsored financial institutions (GFIs); to make new loans to small and medium companies; and deflation-weakened borrowers.

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Format: PDF | Size: 543KB | Date: Dec 2002 | Pages: 34

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