Abstract
The banking crisis from the late 1990s in Japan remains the most memorable incident in Japanese financial history. It was commensurate with the Showa Kin’yu Kyoko, the Showa financial crisis in the 1930s, following the global Great Depression that began in 1929. The banking crisis led to a restructuring of the banking industry, which had not changed for 50 years after World War II. The crucial point of the financial crisis is that neither Japanese banks nor financial authorities had recognized the meaning of deregulation and its associated risks in the financial markets. During the financial crisis the real economy stagnated in terms of both production and consumption throughout the 1990s. Deflation loomed as an important threat. Ironically, the end of bank restructuring opened a gateway to the deflationary economy of the subsequent decade.
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Notes
- 1.
The second regional banks used to be classified as the Sogo Bank, a regionally cooperative financial institution. They were legitimated to be converted to an ordinary bank in 1989 onwards. But they are still classified separately from the regional banks because of their origin.
- 2.
Shinkin, Shinkumi, and other cooperative financial institutions are not included in banks legally but are included in banks in terms of banking business.
- 3.
Rodo Kinko is a cooperative financial institution specifically for employees. There are 13 institutions in regional districts.
- 4.
Nogyo Kyodo Kumiai is a cooperative institution specifically for farmers. There are more than 2000 all over Japan.
- 5.
The number of Shinkin decreased by nearly 180 from about 450 to around 270 mainly because of mergers during the financial crisis. However the number of Shinkumi decreased dramatically mainly because of resolutions noted in Sect. 1.3.1.
- 6.
These business groups had grown in the Meiji Era after 1868 and formed Zaibatsu, a big business concern, under a respective holding company until the end of World War II. They were resolved by General Headquarters, the Supreme Commander for the Allied Powers (GHQ), from 1945 to 1952. But they were reorganized around the year 1960 to be a business combination group with the same origin.
- 7.
Nishimura (1999, pp. 50–56) stated that the impact of the yen’s appreciation after the Plaza Accord on Japan was so huge and it bubbled the Japanese economy.
- 8.
Ohta (1991, pp. 79–81) described the details of discussions in the Committee. He illustrated the attitude of the US representative in the Committee with a phrase ‘The Second Black Ship has come’! The Black Ship was the US foreign delegation in the 1850s which forced the Japanese Tokugawa jurisdiction of Samurai to open the nation.
- 9.
Its official name was the Law for Development of Comprehensive Resort Areas.
- 10.
The Mitsubishi Bank Ltd. merged with The Bank of Tokyo, Ltd. in April 1996. The Bank of Tokyo Ltd. was a specialized bank for international banking business. Only The Bank of Tokyo-Mitsubishi Ltd. among the 11 city banks rejected the second injection of the public fund in March 1999.Then The Bank of Tokyo-Mitsubishi merged with UFJ Bank Ltd. in January 2006 to be The Bank of Tokyo-Mitsubishi UFJ Ltd.
- 11.
The failure of Itoman Corporation, the main bank of which was The Sumitomo Bank Ltd., was well known by the public as a fraud case.
- 12.
At the end of the 1980s, the sum of the market value of the inner area in Tokyo surrounded by the circle train line was estimated to be more than the total value of US land. It was just a story in terms of calculation.
- 13.
In the seventeenth century, the Netherlands was in a time of economic boom having progressed their external trade to Asia. The famous ‘Tulip Bubble’, one of the three big economic bubbles in Europe, happened at that time.
- 14.
The government presented the opinion that five times annual income before tax is the upper limit of a house price for an individual purchaser. But that price was still beyond the financial capacity of ordinary workers.
- 15.
The definition of NPL changed over time. At the time of the Shinkumi crisis it was defined as an uncollectible value of credit even with the sale of collateral. Later, NPL was defined to be the value of credit classified as ‘Special Attention’ and less.
- 16.
Six of them were dissolved. Only one, a subsidiary of The Norinchukin Bank, survived the crisis.
- 17.
The Japanese economy was damaged heavily by the two oil shocks in the 1970s. The growth rate of GDP in real terms decreased from around 8 per cent to less than 4 per cent. Corporate clients of the banks restrained new investment, hence the banks’ lending to business entities significantly decreased. As a result, they rushed into the residential mortgage business which had been a minor business in the 1970s.
- 18.
The amount of the public fund stood at 63.4 billion yen. In this scheme, the parent banks of Jusen were forced to dispose of equities and all lending assets with a huge loss which highly exceeded their pro rata responsibility. The total amount of the lending of the parent banks was 3.5 trillion yen. However, the loss to agricultural financial institutions was only 0.53 trillion yen over their lending of 5.5 trillion yen.
- 19.
Nissaigin was a contracted name of Nippon Saiken Sin’yo Ginko (The Nippon Credit Bank Ltd.) It was the smallest one of the three long-term credit banks. A subsidiary non-bank had collapsed in April 1997. Moody’s announced a likelihood of letting the bank’s rating down caused by this incident. It damaged the bank’s credibility and made it nearly impossible to raise funds in the money market.
- 20.
Okamoto (2004, pp. 155–160) described that the default of Sanyo Securities Co. was a result of miss-accordance of emergency actions among policy makers, the banking bureau and the securities bureau of the MOF and the BOJ.
- 21.
The Fuji Bank Ltd. later merged with the other two banks to become Mizuho Financial Group.
- 22.
The Yamaichi shock was larger than the previous two failures. Sanyo Securities Company Limited was a member of the second group among securities firms. Hokutaku Bank was a regional bank in reality.
- 23.
The Japanese name of the bank was Nippon Choki Shin’yo Ginko. It was the second largest one of the three long-term credit banks.
- 24.
The final loss for taxpayers in public funds related to Chogin was 3.6 trillion yen.
- 25.
New LTC Partners CV was a consortium for a bid of Chogin. The main member was Ripplewood Holdings LLC, a private investment fund in the USA.
- 26.
Subordinated loans or subordinated bonds were allocated for 1.5 trillion yen. Preferred stock was allocated for 0.3 trillion yen.
- 27.
The meaning of Shinsei is ‘new born’. It was not clear whether the name meant a new management style or a new banking style.
- 28.
See Saiken Hoki in Chap. 2.
- 29.
The total amount of Saiken Hoki was about 1.5 trillion yen for seven construction firms between September 1998 and December 2000 (Shikano 2013, pp. 180–181).
- 30.
The Ashikaga Bank Ltd. was sold to a financial consortium led by a subsidiary of Nomura Holdings, Inc. via a limited tender.
- 31.
If the sum of the three years’ expected profit had not been approved as a deferred tax asset, then the net assets of Resona Bank should have been in negative equity.
- 32.
UFJ is an acronym of United Financial of Japan.
- 33.
Sumitomo Trust Bank was an independent listed firm and not a member of Sumitomo Mitsui Financial Group (SMFG) which was managed by SMBC. Sumitomo Trust Bank merged in 2011 with The Chuo Mitsui Trust and Banking Company Ltd. which was also an independent listed firm and not a member of SMFG. They created a new holding company called Sumitomo Mitsui Trust Holdings, Inc. which keeps an independent position away from SMFG.
- 34.
This breach of the contract was developed into a legal battle. Finally the court approved the breach of UFJHD by paying a forfeit to Sumitomo Trust Bank.
- 35.
Immediately after the Lehman Shock in September 2008, even the US dollar and euro were markedly depreciated against the Japanese yen.
- 36.
Regulations of this kind have been common among other economically developed economies. In the USA the business functions of a bank had been restricted within its origin state and abroad by the McFadden Act of 1927 and the Banking Act of 1933. Interest rates had been regulated in the USA until the 1970s and in the European nations until the 1980s.
- 37.
See Sect. 2.2.2, ‘The Financial Big Bang in Japan’ in Chap. 2.
- 38.
Nishimura (2003, pp. 374–375), a former head of the Banking Bureau of the MOF in the 1990s, described that the government did not hesitate to execute the new measures in the late 1990s and they might have made a mistake by not foreseeing the future development of the financial crisis.
- 39.
In 1955, the two conservative parties, the former Liberal Party and the former Japan Democratic Party, merged into a single party. Political parties on the labour side were unified to Social Party of Japan. This reform of the political parties was named ‘the 1955 system’ and lasted up to the mid-1990s.
References
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Nishimura, Y. (2003). Reformation of the Japanese financial system. Tokyo: Toyo Keizai Inc.
Ohta, T. (1991). Witness of international finance at the real scene. Tokyo: Chuokoron-Shinsha, Inc.
Okamoto, I. (2004). Distrust of bureaucrat induced the financial crisis. Tokyo: Koubundo.
Okumura, H. (1999). Theory of the modern Japanese economy. Tokyo: Toyo Keizai Inc.
Shikano, Y. (2013). The Japanese financial system. Tokyo: Toyo Keizai Inc.
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Nakano, M. (2016). Financial Crisis and Banking Crisis in Japan: 1997–2003. In: Financial Crisis and Bank Management in Japan (1997 to 2016). Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-54118-5_1
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