Japan: Recent Failures in the Japanese Banking Sector

Published date01 February 1995
Date01 February 1995
AuthorChizu Nakajima
Journal of Financial Crime Vol. 3 No. 1 International
Recent Failures in the Japanese Banking
Chizu Nakajima
On announcing the debacle of Barings, the Bank
of England emphasised that the circumstances
were 'unique to Barings' in an attempt to calm its
effect on the rest of the financial community.1 But
those in charge of banking and securities opera-
tions around the world must know that what has
happened to Barings is by no means without pre-
cedent. Only last year the downfall of Kidder
Peabody, an American securities firm, was caused
by the head of its government bond trading who
had been creating fictitious trading profits. And
Japan is no exception. Its banking sector has
recently suffered a series of collapses which have
undermined confidence in the financial system.
Events that have been of particular concern to the
public in Japan are failures of two credit associa-
Tokyo Kyowa and Anzen.
In September 1994, it became apparent that Tokyo
Kyowa and Anzen, two credit associations headed
by Takahashi and Suzuki respectively, had run into
financial difficulty. They were caught out in the
burst of the 'bubble economy' in Japan. It has
transpired that both Tokyo Kyowa and Anzen had
been making large loans that far exceeded limits set
by legislation.2 In addition, a serious case of con-
flict of interest was revealed.3 A substantial
proportion of these loans had been made to com-
panies which were, in effect, under the control of
their presidents and their business associates. Taka-
hashi and Suzuki, riding on the 'bubble economy'
during the 1980s, had jointly set up a large number
of property development projects and had made
loans to them without securing adequate collateral.
According to investigations conducted by the
Tokyo Metropolitan authority, some 90 per cent of
these loans were unrecoverable. There arc also
allegations that the two institutions in question had
been making large loans to influential politicians.
Takahashi and Suzuki resigned from their posts in
December last year when the rescue plan was
announced by the Government.
Where there is a contrasting difference between
the failure of Barings and those failures in Japan is
in the way in which governments of respective
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