Japan to rescue Cosmo deposits

NIC CICUTTI

The Japanese authorities have announced plans for a pounds 1.75bn wind-up of Cosmo Shinyo Kumiai, the Tokyo credit union that failed this summer after a run on its deposits.

Tokyo's city government, the Bank of Japan and Japan's deposit insurance body will contribute to the scheme. The rescue means depositors will get their money back, although some large ones will lose interest. Other private financial institutions will write off loans made by them to Cosmo.

The plan was described yesterday as crucial to restoring confidence in Japan's 400 credit unions, many of which have been battered by the country's huge bad-loans problem, estimated by the authorities to stand at more than pounds 300bn.

A senior finance ministry official said: "To protect the stability of the financial system in Japan, financial institutions have decided to co-operate in the scheme."

Tokyo's city government, responsible for supervising local credit unions, suspended part of Cosmo's operations four weeks ago after media reports of its financial troubles triggered a run on deposits.

Under the wind-up deal, Cosmo's business will be transferred to Tokyo Kyodo Bank, set up with Japanese government help to wind up two other failed credit unions. Unrecoverable loans at Cosmo totalled 235bn (pounds 1.5bn). Its creditors include some of Japan's biggest banks: Sanwa, Fuji, Tokai and Mitsubishi Trust & Banking Corp.

Bank of Japan and Tokyo city government and credit unions around Japan will contribute smaller amounts, with the bulk of funds coming from Deposit Insurance Corp of Japan, which insures depositors by using premiums from private banks.