The relatively high share of bank lending, which is one of the features of Japan’s financial structure, contributed to absorbing shocks from the downturn in economic activity within banks’ assets, and thus succeeded in diminishing their effects on the economy as long as the impacts of the shocks were limited.
However, when significant shocks such as those accompanying asset price falls occurred, the concentration of the loss to the banking sector caused substantial damage to its capital base and risktaking capability. This, in turn, amplified the effects of the shocks through tightening of corporate financing conditions.