This delayed the resolution of problem financial institutions and resulted in an escalation of the crisis. In Japan’s financial crisis of the 1990s, policy responses were based on the principle that all depositors, including uninsured ones, should be fully protected in order to preclude a depositors’ run. To cover the cost of the deposit protection, the failed financial institution’s capital would first be used.
The residual amount was supposed to be covered by financial assistance from the Deposit Insurance Corporation of Japan (DICJ). However, under the primitive legal framework of that time, the amount of available financial assistance in a bank failure was limited to covering only the insured.