Michael,
The following is another article regarding the Japan banking system.
I think it buffers our view ( as well as others in this thread) that
the vast amount of the banking system is in perilous position; with
insolvency being a considerable risk; at least if one attempts to
apply U.S. accounting practices.Perhaps good news will come from
unexpected places; but admit I am not
too confident of this.
Japanese Tell U.S. That Their Banks Are in Big Trouble
By DAVID E. SANGER
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
early 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 ther are still disputes, inside Japan and beyond it borders,
over just how much trouble banks are in.M uch 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.
Regards,
Tundra
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.
Monday, October 5, 1998
Copyright 1998 The New York Times |
