The paper examines how financial shocks in Japan, particularly the sharp decline in Japanese stock prices, were transmitted internationally, especially to the United States. The authors argue that the unique characteristics of the Japanese banking system, including large cross-holdings of corporate stocks and strong lending relationships with domestic firms, made Japanese banks particularly susceptible to financial shocks. The decline in Japanese stock prices led to a reduction in the risk-based capital of Japanese banks, which in turn reduced their lending activities in the United States. This reduction in lending was significant and statistically meaningful, indicating that the domestic financial shock had international repercussions. The study uses U.S. banking data to analyze the transmission of the Japanese financial shock. It finds that Japanese banks reduced their lending in the U.S. when their parent banks' capital positions declined, suggesting that the shock was transmitted through the behavior of Japanese banks. The authors also note that the decline in Japanese stock prices caused a significant drop in the risk-based capital of Japanese banks, which in turn reduced their lending activities. This decline in lending was not just to Japanese firms but also affected U.S. firms, although the exact costs of this lost credit availability to the U.S. economy were not quantified. The paper highlights the importance of understanding how financial shocks in one country can affect others, especially through the actions of multinational banks. It also discusses the potential for Japanese banks to shift loan shrinkage overseas, insulating domestic firms from much of the shock. The study uses a variety of data and econometric methods to isolate the effects of the Japanese financial shock on U.S. lending, including controlling for loan demand and other factors. The findings suggest that the risk-based capital ratio of Japanese parent banks had a significant impact on the lending behavior of their U.S. branches. The study also notes that the decline in Japanese stock prices had a significant impact on the risk-based capital of Japanese banks, which in turn affected their lending activities. The authors conclude that the international transmission of financial shocks, particularly from Japan, can have significant effects on the U.S. banking system and other countries with significant Japanese bank presence. The study underscores the importance of understanding and managing financial shocks in a globalized financial system.The paper examines how financial shocks in Japan, particularly the sharp decline in Japanese stock prices, were transmitted internationally, especially to the United States. The authors argue that the unique characteristics of the Japanese banking system, including large cross-holdings of corporate stocks and strong lending relationships with domestic firms, made Japanese banks particularly susceptible to financial shocks. The decline in Japanese stock prices led to a reduction in the risk-based capital of Japanese banks, which in turn reduced their lending activities in the United States. This reduction in lending was significant and statistically meaningful, indicating that the domestic financial shock had international repercussions. The study uses U.S. banking data to analyze the transmission of the Japanese financial shock. It finds that Japanese banks reduced their lending in the U.S. when their parent banks' capital positions declined, suggesting that the shock was transmitted through the behavior of Japanese banks. The authors also note that the decline in Japanese stock prices caused a significant drop in the risk-based capital of Japanese banks, which in turn reduced their lending activities. This decline in lending was not just to Japanese firms but also affected U.S. firms, although the exact costs of this lost credit availability to the U.S. economy were not quantified. The paper highlights the importance of understanding how financial shocks in one country can affect others, especially through the actions of multinational banks. It also discusses the potential for Japanese banks to shift loan shrinkage overseas, insulating domestic firms from much of the shock. The study uses a variety of data and econometric methods to isolate the effects of the Japanese financial shock on U.S. lending, including controlling for loan demand and other factors. The findings suggest that the risk-based capital ratio of Japanese parent banks had a significant impact on the lending behavior of their U.S. branches. The study also notes that the decline in Japanese stock prices had a significant impact on the risk-based capital of Japanese banks, which in turn affected their lending activities. The authors conclude that the international transmission of financial shocks, particularly from Japan, can have significant effects on the U.S. banking system and other countries with significant Japanese bank presence. The study underscores the importance of understanding and managing financial shocks in a globalized financial system.