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To: Herschel Rubin who wrote (30420)	3/17/1998 8:23:00 AM
From: Earlie	Respond to of 53903

Herschel and SB: Japanese banks must demonstrate an 8% capital-to-loans ratio by April 1, if they are to meet the "deregulation" ("big bang") requirements, which is targeted to occur on April 1. Personally, I thought that they would postpone, given the current messy situation within their banking sector, but the fact that the banks have been systematically pulling in their small and intermediate business loans (which is decimating that sector, which provides 75% of Japan's GDP) suggests that for whatever reason, they are going through with it. As of deregulation, Japanese savings are free to roam. Obviously, U.S. rates will prove attractive. Japanese savers are frightened and are stripping their banks of savings. The money is walked down the street where it is currently pouring into the government-run Postal Savings System (say about half of it), or into U.S.bank branches (estimate one quarter of it at present). The rest is staying in the house.....there has been an historic buying spree of safes in Japan this year.....the large heavy rectangular type as opposed to .....oh never mind. This of course exacerbates the banks' capital deficiency problem. A very vicious circle. The money flowing into the U.S. banks will inevitably partially leak into the markets, given Wall Street's propensity for selling a story, and the Japanese fondness for being the last buyers into every market. My belief is that Japanese rates will rise after April 1 to try to keep the dough at home, and that U.S. rates will drop a bit to reduce the differential, although Greenspan will be happy to see anybody's money being used to soak up incoming Asian central bank treasury sales, and may just leave rates as they are, despite Japanese pressure to reduce the differential. As April 1 approaches, I'll stay mostly on the sidelines, until I see if the Japanese actually go through with dereg. Their banks are now teetering on the cliff edge, and even their own officials expect carnage on the backside (one top Japanese official estimated that only 10 of their top 148 banks would survive this event), I would not be surprised to see a postponement at the last minute as the damage to be absorbed mounts, but for now it is still on. Best, Earlie