Finance Ministry’s decision July 30 to order Dai-Ichi Kangyo Bank to refrain from extending loans to new customers until the end of the calendar year was an attempt to show that it is seriously trying to tackle wrongdoing in the financial markets.
Coming on the same day as its administrative action against Nomura Securities Co., the ministry indicated that any deviation from established rules will not be tolerated, especially as the government works to implement its so-called “Big Bang” financial deregulation. There was some speculation that the bank’s punishment would be more lax than what was slapped on Nomura, but the suspension period is the same for both.
The potential impact that a partial suspension of operations could have is thought to be stronger in banking than in brokering. But because the government hopes to have Japan’s financial community functioning according to global standards to increase Tokyo’s attractiveness, the ministry could not help but take severe action against Dai-Ichi Kangyo for its first offense.
Ministry officials acknowledged that they had a harder time deciding how to penalize the bank, since disruption of banking operations can also have a potentially greater adverse effect on the public. Kimio Yamaguchi, director general of the ministry’s Banking Bureau, pointed out that Dai-Ichi Kangyo would not be able to secure new customers until January, and that it would be banned from participating in some core areas on the new business frontier for 12 months. This includes setting up a financial holding company.
“While it may be improper for me to say whether the penalty was strict or light, I do not believe that such measures could be termed as mild,” he told a news conference after the penalty was announced.
Toru Nakakita, a professor of economics at Toyo University, said administrative punishment has to be strict, adding that authorities must know by now that the old system of financial supervision does not work any more. As financial reforms progress, some observers say the basic differences between the feeble legal punishment for banks and that for other financial institutions needs to be addressed.