Abstract: After the collapse of the bubble economy, Japan experienced the bankruptcy of small and medium-sized banks, which can be divided into three periods: the initial manifestation period, the rapid outbreak period, and the concentrated disposal period. Japan gradually formed measures to deal with problematic small and medium-sized banks, such as rescue-style mergers and acquisitions, early correction and early warning systems, which effectively alleviated the impact of the subprime mortgage crisis. The Japanese government also took measures to resolve the non-performing loans of small and medium-sized banks by strengthening the disclosure of non-performing loan information and improving the liquidity of non-performing loans through sorting out recovery agencies. Against the background of low interest rate spreads and an aging population, Japan's small and medium-sized banks continue to expand their sources of income, increase the scale and efficiency of their business operations, and build a local close-knit financial system to serve the needs of local social and economic development. Japan's experience has certain reference significance for promoting the risk disposal and transformation of China's small and medium-sized banks.

Key words: Japan, problem small and medium-sized banks, financial bankruptcy property administrator, local close-knit finance, local economic development