Japanese Banks: More Meetings ==> More Confusion
"Japanese Tell U.S. That Their Banks Are in Big Trouble"
By DAVID E. SANGER -- 10/5/98
WASHINGTON -- Japan's top financial officials
told their American counterparts this weekend
that their
country's banking system was acutely short of capital,
with the top 19 banks in deeper trouble than Tokyo has
ever before admitted, according to officials familiar
with the discussions.
At a private meeting Saturday, the governor of the Bank
of Japan, Masaru Hayami, told Treasury Secretary Robert
Rubin and Alan Greenspan, the chairman of the Federal
Reserve, that the capital supporting those 19 major
banks has dwindled to dangerously low levels in recent
months.
The capital reserve levels are now so low that these
banks of the world's second largest economy might be
banned from operating internationally "if the rules
were vigorously pursued," said a senior Japanese
official, relating the conversation.
But on Sunday, in a reflection of the enormous
confusion surrounding Japan's financial crisis, other
senior Japanese officials disputed Hayami's
presentation and insisted that the reserve levels have
not declined to dangerous levels.
Banks that want to operate globally are required to
keep on hand capital amounting to at least 8 percent of
their outstanding loans. Few and fewer of Japan's banks
can meet that standard today. Hayami's remarks suggest
some may fall below the 4 percent minimum for operating
within Japan's borders.
Japan's conflicting explanations came as leaders of the
world's major economies met here for a second day at
the annual meetings of the World Bank and the
International Monetary Fund to grapple with an economic
crisis that many fear has spun out of control. On
Sunday, Rubin again pressed for changes at the fund and
the bank that would improve their ability to head of
crises.
"Strengthening the response to the current crisis and
creating a modern framework for the global markets of
the 21st century will not be easy or quick," Rubin said
before the committee that oversees the IMF's
operations.
But many officials here, including James Wolfensohn,
president of the World Bank, argued on Sunday that
countries should focus their energies on the immediate
crisis and postpone a broader discussion of remaking
the global financial system.
Rubin's meeting with Japanese officials on Saturday
took place in the ornate private conference room
adjacent to his office at the Treasury. The session
also included Japan's finance minister, Kiichi
Miyazawa, a 78-year-old former prime minister who has
negotiated with the United States since the U.S.
occupation ended nearly a half-century ago.
Later, Hayami discussed the problem publicly, though in
less detail, telling reporters that Japan's major banks
were "undercapitalized." He called on Japan's
parliament to inject billions of taxpayer dollars into
the banks to restore them to health, a hugely
controversial question within the country.
Bolstering Japan's ravaged banking system is considered
by many experts the single most critical factor in
quelling the global financial turmoil that has rocked
markets around the world.
But there are still disputes, inside Japan and beyond
its borders, over just how much trouble the banks are
in. Much depends on how the figures are calculated --
and there are many ways to manipulate the numbers.
Hayami, who runs Japan's independent central bank,
appeared to be painting a bleak picture in the meeting
at the Treasury, describing how banks have been forced
to eat into their capital to write off enormous bad
loans in real estate. He used, Japanese officials said
later, a narrow definition of the banks' capital that
put their condition in the most perilous light.
On Sunday night officials of the Ministry of Finance,
which has been accused of greatly mismanaging its
regulatory responsibility over the banks, insisted that
Hayami's presentation to Rubin and Greenspan was deeply
flawed. In response to queries on Sunday, they offered
an alternative calculation, based on accounting
standards set out by the Bank of International
Settlements, that they said demonstrated that the
biggest Japanese banks largely exceeded the 8 percent
standard.
The disagreement seemed to underscore the enormous
disarray within the Japanese government at a time that
the country is being portrayed, by U.S. and European
officials, as a major cause of the continuing turmoil.
But it is also possible that some Japanese officials
are hoping that the disclosures with prompt enough
foreign pressure to help force parliament to inject
billions of dollars into the banking system.
U.S. officials said that at the meetings on Sunday they
were successfully building support for a proposal by
President Clinton to change the strategy of the IMF, so
that it can offer pre-emptive aid to countries that are
fundamentally healthy, but in danger of runs on their
currency or their banking systems because of
"contagion" from other stricken nations. They said it
would probably be a number of weeks or a few months
before the plan is adapted, however.
Clinton is expected to press for changes in the IMF and
an increase in social spending in a presentation to
finance ministers from 22 nations on Monday evening.
At the same time, Britain, which has supported
Clinton's plan, offered a pointed reminder on Sunday
that the U.S. proposal to restructure the fund would be
sharply undercut if Congress failed to approve $18
billion in money the United States has committed to it.
"The starting point of this is the American government
voting the resources the IMF requires," the British
chancellor of the exchequer, Gordon Brown, said at a
press conference on Sunday.
Copyright 1998 The New York Times Company |
