Japanese Bank Files for Insolvency
Japanese Bank Files for Insolvency in Sign of Broadening Financial Troubles
By SHIGEYOSHI KIMURA
Associated Press Writer
TOKYO (AP) -- In a sign of broadening instability in the Japanese financial system, a second-tier regional bank declared itself insolvent on Friday, becoming the first such lender to go under in more than two years.
The Ishikawa Bank in central Japan has applied with the Financial Services Agency to begin bankruptcy proceedings, said Hakuo Yanagisawa, state minister in charge of financial policy. The agency immediately appointed administrators to help the bank restructure.
Ishikawa Bank, which has 65 branch offices and 709 employees, posted a loss of $183 million for the fiscal year ended in March.
Cleaning up the bad loans at Japanese banks is one of the key promises for economic reform made by Prime Minister Junichiro Koizumi. But the economic slowdown, which worsened since the Sept. 11 terrorist attacks, has made solving the bad debt problem even more difficult. Japan recently tumbled into its third recession in a decade.
However, banking stocks rose on the Tokyo Stock Exchange on Friday on optimism that the government may inject public funds into the ailing banking system early next year in order to head off deeper financial troubles.
Also Friday, four small regional financial institutions gave up their own restructuring efforts and filed for insolvency with the FSA, said Isamu Kato, an official of the agency.
Ishikawa Bank and the four other institutions will continue normal operations and all deposits will be protected. The central Bank of Japan will grant them special loans, said BOJ official Satoru Yamadera.
Ishikawa Bank was the first second-tier regional bank to go under since the failure of Niigata Chuo Bank in October 1999.
Finance Minister Masajuro Shiokawa told reporters that Koizumi will disclose a plan to turn around the economy early next year. ``It is important and appropriate that the prime minister dispel fears,'' Shiokawa said. ``We will not allow the failure of financial institutions to spread.''
For decades, Japanese banks were seen as infallible because of their close government ties. That myth was shattered during the 1997-98 financial crisis, when two major banks collapsed.
Japanese government officials have repeatedly denied the financial system is now in the same kind of trouble as the crisis four years ago. Despite billions of dollars in public money earmarked to bail out banks at that time, they have continued to rack up new dubious loans.
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