Deposit Insurance Reform in Japan: Better Late Than Never?

Introduced in 1971 as a response to the intensification in competition in the deposit-taking sector induced by the adoption of a program of liberalization and globalization, the deposit insurance system in Japan has since undergone a number of significant changes to accommodate developments in the local financial sector. The pace of such reform accelerated markedly in recent years to help stabilize the Japanese financial system in the face of systemic risk, be it due to the failure of the housing loan companies (the jusen) or other major institutions, such as Yamaichi Securities and the city bank Hokkaido Takushoku Bank. The evolution of local deposit insurance arrangements to cope with such events is explained here and an assessment of the policy responses is provided. The part played by deposit insurance in alleviating the pressures currently experienced by the Japanese banking sector also is addressed. Finally, the extent to which the Japanese authorities have learned from the U.S. experience with deposit insurance is examined.     

Asymmetric timeliness tests of accounting conservatism

Recent accounting research employs an asymmetric timeliness measure to test the hypothesis that reported accounting earnings are “conservative.” This research design regresses earnings on stock returns to examine whether “bad” news is incorporated into earnings on a more timely basis than “good” news. We identify properties of the asymmetric timeliness estimation procedure that will result in biases in the test statistics except under very restrictive conditions that are rarely met in typical empirical settings. Using data series that are devoid of asymmetric timeliness in reported earnings, we show how these biases result in evidence consistent with conservatism. We conclude that the biased test statistics inherent in the asymmetric timeliness research design preclude using this method to measure conservatism; that these biases are irresolvable as they originate in the test’s specification; and that studies employing asymmetric timeliness tests cannot be interpreted as providing evidence of conservatism.