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2008年12月13日 (土)



--The Asahi Shimbun, Dec. 12(IHT/Asahi: December 13,2008)

EDITORIAL: Propping up the banks


The financial crisis is battering Japan Inc. with a vengeance. The number of corporate bankruptcies in the January-November period reached the highest level in five years, surpassing even the total for all of last year. A number of companies went under as they failed to raise the money needed to run their operations, even though they were operating in the black.


Small and medium-sized companies are bearing the brunt of the credit squeeze. While banks are tightening their lending standards, large companies that hadn't gone to banks for years are now queuing up at loan windows, leaving credit hard to come by for small and medium-sized businesses.


Big companies have weaned themselves from bank loans and procured necessary funds in international markets by issuing commercial paper--a kind of promissory note for short-term financing--and corporate bonds. But the global financial crisis has made it difficult even for large companies to issue these debt-financing instruments, forcing them to borrow from domestic banks.


In addition to seeking loans from major banks, large companies are also turning to unfamiliar regional lenders that mainly cater to small and midsized businesses. This rush toward bank lending among corporate giants is causing smaller borrowers to be crowded out. Domestic banks are failing to make effective responses to the drastic changes in corporate financing patterns due to the financial crisis.


The government plans to take steps to help large and midsized companies facing a cash squeeze raise operational funds.


What should banks do? Banks are required to maintain a certain level of capital adequacy by keeping their risk assets--mainly loans--below a specified ratio to their equity capital. It is now vital for banks to enhance their capital bases so that they can expand their lending.


The Lower House passed a bill Friday that allows the government to inject public funds into banks facing a potential capital inadequacy. The law to strengthen financial functions is aimed at bolstering the capital positions of banks to increase their lending to small and medium-sized companies.


Whether this legislation, which actually revives and expands an expired bank recapitalization program, achieves its principal purpose depends on two things.


First, the revised program must be operated in a way that enables capital injections into a larger number of banking institutions. Secondly, steps are needed to ensure that credit will actually become more available to smaller businesses as well as large companies.


The government initially intended to save top bank executives from being held accountable for their institutions' troubles in order to avoid discouraging banks from applying for cash infusions. But concerns about lax management prompted the government to revise the bill to hold top bank officials responsible for serious mismanagement in the past or slipshod management after cash injections by the government.


There are good reasons for the government to demand discipline in the management of banks that receive public funds. But pursing the issue of management responsibility to an extent that intimidates banks would defeat the purpose of the program.


For the time being, the government should put priority on strengthening banks' capital bases to restore a healthy flow of credit through the economy so that small and medium-sized firms can also get the cash they need to stay in business.


The government also needs to press the banks that have received public funds into increasing their loans to smaller corporate borrowers.


The government has promised to increase the amount of money set aside for the cash injection program from the 2 trillion yen under the old law, but it has yet to decide on the size. The program should be expanded drastically to encourage banks to apply.



Kaoru Yosano, state minister in charge of economic and fiscal policy, once suggested making 10 trillion yen available for the cash infusion plan. That would be a reasonable amount.


The chief executives of financial institutions that lend mainly to small and medium-sized companies should seriously consider how to take advantage of the program. The future business prospects of such institutions can be blighted unless they make serious efforts to increase loyal customers over the long term.


Domestic banks now need long-term business strategies that also pay attention to the social roles they should play.



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