Some incentive mechanisms, however, fail to induce efficient behavior. For example, incentives influenced the course taken by Japanese banks in dealing with the problem of non-performing loans. Until the late 1990's, the Japanese regulatory and institutional environment did not motivate banks to take prompt actions that would have prevented their balance sheets from  deteriorating further.
For example, the latitude banks had in the disclosure of non-performing assets enabled banks to withhold information, perfectly legally, on the full extent of their problems. As a result, market discipline could only play a limited role. At the same time, measures available to regulators and supervisors were rather limited.