Tokyo Sowa Bank collapsed Friday under a massive capital deficit to become the latest failure in Japan's debt-ridden financial sector.
Tokyo Sowa, a second-tier regional bank based in Tokyo, asked the Financial Reconstruction Commission to begin liquidation proceedings after revealing earlier in the day that it had a had a capital deficit of 102.2 billion yen at the end of fiscal 1998.
The disclosure brings its capital-adequacy ratio to minus 5.6 percent, reversing its modest 2.42 percent self-assessment announced earlier this year.
In an initial earnings report for fiscal 1998 the bank released in May, assets were comfortably in excess of liabilities by some 40 billion yen. But a Financial Supervisory Agency audit revealed a capital deficit of 120 billion yen was present as of the end of last September.
The FSA then ordered the Tokyo Sowa to revise its balance sheets.
The revised earnings report shows an unconsolidated pretax loss of 169 billion yen and a net loss of 194 billion yen. The previous report shows losses of only 69.2 billion yen and 64 billion yen, respectively.
Banks that operate domestically are required to maintain capital levels equal to 4 percent of all the institution's risk-weighted assets.
A capital deficit means the company's potential losses exceed the combined amount of its shareholders' equity and other capital assets.