Crisis hints at Tokyo 'meltdown'
Tuesday 01 August 1995
Hong Kong and
The Japanese government has moved quickly to stem a loss of confidence following the first run on a large financial institution in many years. However, the episode could start a "very serious meltdown" which could lead the government to bring forward a blueprint being drawn up to rescue the beleaguered Japanese banking system, according to Noriko Hama of the Mitsubishi Research Institute in London.
Yesterday, the Cosmo Shinyo Kumiai, a credit union in Tokyo, suffered a run, with investors withdrawing an estimated 60bn, (pounds 426m) or 13 per cent of its deposits.
Having said over the weekend that it would support the ailing Cosmo with about 30bn, the government changed its mind as withdrawals mounted yesterday. It then ordered the union to cease trading. The governor of Tokyo, Yukio Aoshima, said that all depositors could withdraw funds up to 100m in cash and excluding term deposits that hadn't matured.
Although the credit union comes under the supervisory control of the Tokyo metropolitan authority, the Bank of Japan stepped in to support the bail-out for depositors.
The bank said that, with the Ministry of Finance, it would "take all necessary measures to protect bona fide depositors and to prevent disruption from spreading to other financial institutions".
An analyst in London who specialises in Japanese banking said "there are an awful lot more like Cosmo out there". The weakness of the credit union sector, which comprises nearly 400 institutions, comes principally from high exposure to Japan's falling property market. Although credit unions are far smaller than the big Japanese banks, they play a big role among small investors and were active participants in the property bubble during the Eighties.
They are generally regarded as the weakest part of the Japanese banking system, which the Ministry of Finance revealed last week to have bad debts of 50,000bn. According to a ministry spokesman, between a fifth and a third of those bad debts were not covered by collateral or reserves.
Nick Stamenkovic, an economist at DKB International, said the collapse of Cosmo "was the tip of the iceberg", highlighting "the vulnerability of the whole financial system". Noriko Hama pointed out that although the problems of Cosmo were occurring "at the periphery", there were serious problems at the nerve centreof the Japanese banking system - the 21 biggest banks.
The government is understood to be working on a comprehensive new plan to solve the bad debt problem, which is contributing to financial fragility and economic weakness.
Previous attempts, which hoped for a gradual convalescence of the banking system , are recognised to have failed.
Comment, page 15
Total bad loans
Total bad loans As percentage of loans
21 major banks 34,981 9.14
and Regional II 11,213 6.11
Shinkin banks 2,397 3.50
Credit cooperatives 671 3.50
Agricultural sector 7,811 18.93
Others (excl. insurance) 859 3.86
Total 57,933 8.07
- 4 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
- 5 New Tricks: Dennis Waterman to leave the show after a decade of crime-solving
Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
Kim Kardashian 'nude pictures' leaked on 4chan weeks after Jennifer Lawrence 'The Fappening' scandal
Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Ice Bucket Challenge: US firefighter Tony Grider dies after participating in charity craze near power lines
Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...