Here is the doom and gloom commentary on Japanese Banks (somewhat similar to my article on the topic). This time it is official; it's from the Japanese Finance Ministry. We broke the 13000 last night on Nikkei, and you know how I feel about that. In addition there is now the very real danger of Russia collapsing into civil war. More on Russia later, but you heard it here first.
Sun Tzu
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By DAVID E. SANGER
ASHINGTON -- 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 controversy 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 striken 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. |
