The Sound of a Japanese Bank Falling: Very Quiet
$508 billion bailout may not force heads to roll for past mistakes.
The 1980s was good to Japanese banks. The market was strong and the banks were world class and had money to burn.
Now, it looks as if they lost a little along the way - some $600 billion in bad loans, according to the government, which has unveiled a rescue package to return the banks to an even keel.
The bank troubles have produced a credit crunch that's squeezing the air out of Japan's economic lungs. They have unsettled world markets and will cost taxpayers here $508 billion, an amount nearly equal to Canada's 1997 gross domestic product.
You'd think people might be mad.
There have been some calls for accountability, but few heads have rolled. In a country that has ritualized the process of "taking responsibility" through resignation and suicide, the silence is odd. But it is as much a reflection of Japanese culture as it is of the challenges the country faces. Not least, the quiet way Japan is confronting its bank crisis shows how it is adapting to global standards on its own terms.
In classic, group-oriented fashion, the government's rescue plan sets aside money for all banks, weak and failing alike. The newly formed Financial Revitalization Committee will decide which banks get public funds, which have to restructure, and where management accountability should be demanded. Though no one knows what the criteria will be, more stringent conditions will apply to faltering banks.
But the government is letting banks evaluate their own health by allowing them to appraise their assets at book value instead of market value. This inflates the value of their holdings and makes the banks appear healthier than they really are.
All this will allow even fragile banks to stay afloat. And while this doesn't jibe with international demands for a swift restructuring and cutting off of deadbeat borrowers, it does fit a Japanese emphasis on equality and meeting the common good.
Keeping afloat banks, and the companies that rely on them, will minimize bankruptcies and unemployment, an important goal of the ruling Liberal Democratic Party, which doesn't want to further anger a populace that gave it a jolt at the polls this summer.
The government also hopes its approach will induce more banks to apply for public funds, which they believe is the only way to restore economic health. Politicians worry that calling bankers onto the carpet for their mistakes would make them reluctant to ask for help.
THE government's plan fits another cultural criterion by allowing the banks, former global titans, to save face. The banks can claim to be healthy, but still apply for money.
Public reaction to the bank-bailout plan seems best characterized as resigned acceptance. But some analysts are calling for a thorough housecleaning. "All the bank presidents and boards of directors should realize their mismanagement has created this financial mess," says Tadashi Nakamae, president of Tokyo-based Nakamae International Economic Research. "They should take responsibility and resign, or else nothing will change."
But culture aside, there are practical reasons that this is unlikely to happen.
The government is loath to rake an entire generation of bankers over the coals at a time when the economy is so fragile. "If we put the first priority on management responsibility, we would never be able to inject public funds to strengthen the banks," Chief Cabinet Secretary Hiromu Nonaka told reporters this week.
To be sure, some wrists have been slapped. In the past 10 months, 28 banks have replaced their presidents, though only five cite mismanagement as the reason. The 17 largest banks have announced plans to cut salaries and bonuses, as well as some 15,000 jobs.
The directors of the recently nationalized Long Term Credit Bank (LTCB) may face criminal charges for misrepresenting the amount of debt they carried. Just the week before the LTCB went under government control, it asserted it was solvent. When government auditors took over, they announced that bankers had hidden $11 billion in bad debts and that it was "virtually insolvent."