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'Bubble Economy' Froth Still Troubling Japanese Banks

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BY some standards, it might have been a bad week.

Three Japanese financial institutions with deposits worth 4.279 trillion yen, about $43.6 billion, passed into history. It was Japan's first bank crash in 50 years. Depositors fought as they struggled to collect their cash from windows at Japan's largest credit union.

Even so, Japanese financial authorities expressed satisfaction. Why? They say that they are closing in, at last, on the stupendous roster of bad loans rolled up by Japanese financial institutions during the heyday of Japan's ''bubble economy'' in the late 1980s.

In an interview on Japanese TV, Finance Minister Masayoshi Takemura said, ''I now feel relieved after announcing a plan to dissolve large financial institutions like Hyogo Bank. The announcement ... will put an end to a chain of announcements of liquidation programs. Such one-by-one solutions have reached a climax.''

One reason for Mr. Takemura's complacent attitude, of course, is that the bailouts, if effective, will clear about 10 percent of the estimated 10 trillion to 15 trillion yen in non-recoverable debt that saddles the Japanese financial system - about $102 billion to $153 billion at the current exchange rate of 98 yen to the US dollar. Total bad debt is estimated at 40 trillion to 50 trillion yen.

On Monday, regulators announced a 235 billion yen bailout plan, or $2.4 billion, for Tokyo's largest credit union, Cosmo Credit, which collapsed on July 31. On Wednesday, Osaka-based Kizu Credit Union, the largest of Japan's 400 credit unions and three times the size of Cosmo, announced it would close its doors. The same day, Kobe-based Hyogo Bank, the largest Japanese regional bank, with 2.65 trillion yen in deposits, said it would cease operations by January. Altogether, the three financial institutions had about 1.7 trillion yen in unrecoverable loans.

In all three bailouts, regulators have established that stability of the banking system comes first. Depositors at the two credit unions will get their deposits back, with interest, despite the fact that the high rates Cosmo and Kizu offered were part of what drove them out of business.

In US terms, none of the three crashes is an actual bankruptcy. Hyogo Bank will be replaced by a new bank with most of the same employees, its 600 billion yen in debt ($6.42 billion), and 400 billion yen ($4 billion) in new funds from deposit insurance programs. It has 10 years to pay off the rest of its debt.

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