2024-02-17
Furthermore, because it became one of the factors that brought about Japan’s subsequent “Lost Two Decades,” this policy ultimately ended in failure

February 13, 2018
The following is Wikipedia’s description of the restrictions on total lending.
The restrictions on total lending were administrative guidance issued to financial institutions by Japan’s Ministry of Finance on March 27, 1990.
They remained in place for approximately one year and nine months, until they were lifted in December 1991.
The term refers to the provision in the notice issued by the director-general of the Ministry of Finance’s Banking Bureau, “On Restraining Land-Related Lending,” that required the growth rate of lending to the real estate sector to be kept at or below the growth rate of total lending.
Although the policy was intended to curb excessive increases in real estate prices, it dealt the Japanese economy a blow in the form of a sudden economic downturn far exceeding expectations—the so-called collapse of the bubble—and became one of the factors that brought about Japan’s subsequent “Lost Two Decades”; consequently, the policy ultimately ended in failure.
The notice was issued by Masaaki Tsuchida, then director-general of the Ministry of Finance’s Banking Bureau.
The minister of finance at the time was Ryutaro Hashimoto.
Details
On March 27, 1990, a notice entitled “Restrictions on Total Real Estate Lending” was issued to financial institutions nationwide in the name of Masaaki Tsuchida, director-general of the Ministry of Finance’s Banking Bureau.
Its aim was to curb the growth of lending flowing into land transactions in order to cool extraordinary speculative fervor.
Keep the growth rate of lending to the real estate sector at or below the growth rate of total lending (restrictions on total lending).
Require reports on the actual state of lending to the real estate industry, the construction industry, and nonbank financial institutions, including housing loan companies known as jusen (restrictions on three business sectors).
However, because the restrictions on real estate lending did not cover housing loan companies, and financial institutions affiliated with agricultural cooperatives were also exempt, funds flowed from agricultural cooperative financial institutions to housing loan companies and then into real estate investment.
As a result, the bad loan problems of housing loan companies worsened.
Under this notice, financial institutions deliberately implemented, as a matter of policy and on a massive nationwide scale, practices that have continued to the present day, such as refusing to provide loans despite having issued loan commitment certificates, or cutting off financing midway through construction—the practices of withholding and withdrawing credit.
This resulted in asset price deflation and became a major cause of the prolonged stagnation of the Japanese economy that followed.