Japan recouped much of the public money it pumped into banks during the country’s financial crisis last decade, when toxic loans totaled as much as ¥100 trillion, Financial Services Agency Commissioner Takafumi Sato said Wednesday.
The nation endured an economic and financial malaise in the 1990s known as the “lost decade” after the bursting of a real estate bubble that had been built on excessive lending. Insolvent lenders propped up by government bailouts became known as “zombie” banks and cast a long shadow over the world’s second-largest economy.
The banking system of the 1990s was burdened with ¥90 trillion to ¥100 trillion in bad loans, Sato said at the Foreign Correspondents’ Club in Tokyo.
Banks have repaid ¥8.45 trillion of the ¥9.6 trillion in public money injected into the financial system during the troubled decade. “That was good business, in retrospect,” Sato said.
Reflecting the views of other officials and analysts, Sato said that what Japan underwent offers lessons for the global financial crisis unfolding now, including the need for public money to prop up weakened banks.
“We have argued that Japan’s experience in the 1990s provides useful suggestions as to how our fellow regulators should respond to the ongoing difficulties,” he said.
Japan’s experience also shows how critical it is to remove toxic assets from bank balance sheets, Sato said, adding that such measures weren’t about saving individual banks but about preserving the health of the financial system.
In estimating nonperforming loans, Sato acknowledged it had been difficult to get a proper assessment of the bad-loan damage while financial markets were in turmoil.
Sato said the exposure of Japanese financial institutions to the latest crisis was minimal, partly because they weren’t “innovative,” and hadn’t invested in what turned out to be risky securities.
The danger for the banks now is the hobbled economy because they hold shares in companies in what are known as cross-shareholdings, he said.
The country’s top banks sank into the red for the fiscal year that ended in March because of losses on such stock holdings.
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