Opinion

Stop Bank Bashing!

By SCOTT T. HARDS

OK, that's it! I'm not going to take it anymore! There's too much bank bashing going on! Led by the mass media, it seems like everybody these days wants to demonize Japan's banks.

Certainly, many things that the banks have done over the past few years cannot be defended. But as a former employee of one of Japan's city banks, I think it's time to respond to some of the more common false criticisms that are being tossed around these days.

Interest rates are too low: Sure, 0.25 percent interest on regular savings is hardly something to write home about, but that's not the banks' fault. Rates, influenced by the Bank of Japan's discount rate, primarily reflect the state of the economy. Higher rates now would hurt borrowers and just make things worse.

Besides, if you have money to invest, the April 1 loosening of foreign exchange laws has made it very easy for savers in Japan to place their funds in relatively high-yielding overseas accounts.

Banks are killing businesses by refusing to lend: Currently, Japan's city banks' kashi-shiburi, or tight lending practices, have drawn fire because many believe they are leading to the failure of otherwise viable companies.

But keep in mind that Bank for International Settlements (BIS) capital adequacy regulations are the main factor involved. If the banks lend aggressively, they will lower their capital adequacy ratios below acceptable international limits. Many of the firms that banks are letting fail are companies that were doomed anyway.

The banks simply decided that they didn't want to throw good money after bad. Believe me, banks want to lend! And shutting down lending now will seriously hurt their future profits.

The solution? Get an exception built into the BIS guidelines for Japanese banks, or let them boost their capital base by selling preferred stock to the government.

Taxpayers' funds shouldn't be used to help bail out the banks' bad loans: Certainly many of the loans of the bubble years were pure folly, but it was also the job of the Bank of Japan and Ministry of Finance to supervise the banks and prevent bad loans.

They obviously didn't do their job. It is important to help the banks start lending normally again by clearing these loans off their balance sheets quickly so they can contribute to the recovery of the Japanese economy.

Unless the banks can help pull Japan out of recession, the pain to consumers will be far more costly than the amount of tax money pumped into bank coffers.

Bank employees make too much money: No, they don't. Yes, they earn some 40 percent more on average than manufacturing employees, but they're worth it. Japan, just like any capitalist economy, pays its workers based on their ability to generate earnings for the company, and bankers are very good at that.

If the economy as a whole were a human body, then banks would be the heart. They pump the blood (money) that organs (companies) throughout the body (economy) need to survive.

One of the biggest problems in Japan right now is the fact that they are not lending the way they should be. It is now up to the country's leaders to create the environment that WILL let banks lend and revitalize the rest of us.

Shukan ST: May 15, 1998

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