When a borrower faces a hold-up problem, deteriorating bank health might reduce a borrower's credit availability. However, a bank with an impaired balance-sheet might attempt to ‘gamble for resurrection’ and hence might increase risky lending to zombie firms. The purpose of this paper is to...

The Japanese banks are now holding a lot of non-performing assets as asset prices fall. The Japanese banks were also holding a large amount of non-performing assets in the inter-war period. The experiences of Japan in the inter-war period may provide useful lessons for the problem of today's...