BIS central bankers’ speeches  1  The collapse of the asset bubble, financial system instability, deleveraging, and the “three excesses” In the 1990s, Japan’s banking sector was riddled with a mountain of nonperforming loans resulting from the collapse of the 1980s bubble in real estate and stock prices.
At the same time, Japan’s corporate sector was suffering from the “three excesses” just mentioned – excess debt, capacity, and employment – owing to the expansion of businesses driven by overly optimistic growth expectations. In 1997 through 1998, these problems led to the successive failure of major financial institutions, significantly impairing the functioning of financial intermediation and causing a sudden credit crunch (Chart 1).