TOKYO, Jan. 5 (UPI) -- Prime Minister Junichiro Koizumi's renewed pledge to reduce the government's full protection of depositor's bank balances could trigger a financial crisis this spring.
Koizumi said Friday, for example, that he is "not considering postponing its introduction" of a plan, effective April 1, for the government to cover accounts of depositors in failed banks of up to only 10 million yen ($76,336). Currently the government guarantees the full amount of deposits in case of a bank failure.
A guarantee of more than $75,000 may sound like a lot outside of Japan, but the Japanese may be the world's best savers. According to the Bank of Japan, the average Japanese household had 14.5 million yen in savings in the year 2000.
Stacked up against the world for 1998-99, the latest figures available, Japanese average household savings was 13.4 million yen ($102,000), Germany 9.2 million yen ($70,200), the the United States 2.3 million yen ($17,500) and the United Kingdom 0.9 million yen ($6,800).
The concern in Japan is that if depositors' money is not fully protected by the government, some depositors could start a run on Japan's banks, already staggering under bad debts conservatively placed at 150 trillion yen ($1.15 trillion).
Last year, the government was faced with the same April 1 deadline to chop the guarantee but political pressure forced full protection of bank deposits to be extended. That could happen again except that Koizumi, known for his "no pain, no gain" philosophy, seems determined to proceed with his reforms, and the bank deposit issue is one of them.
Economist Ken Courtis, vice chairman of Goldman Sachs Asia Ltd., calls it a double-edged sword.
"If you increase (keep the full guarantee), you are admitting that you don't have confidence (in the banks). If you take it away, you could create a situation that if there were a panic, it would lead to real problems (for the financial system)."
Koizumi, dressed in a formal black kimono for his Friday news conference, promised to keep the bad loan situation under control.
"Although disposal of massive nonperforming loans is being carried out steadily, the government is prepared to take bold and flexible measures to prevent major confusion," he said. "We are keeping a close watch over the financial situation."
Japanese banks got into serious trouble by incautious lending during Japan's "roaring 80s" bubble economy when companies sought bank loans to expand and diversify operations. Many companies put up land as collateral for their loans, and land prices nose-dived after the bubble collapsed.
Banks are under increase pressure to call in their bad loans that in turn would lead to bankruptcy of several big companies. Some have already fallen and an estimated one-third of Japan's listed companies are considered "walking wounded," held up only as long as the banks don't force them into bankruptcy.
Economists say it will take a massive injection of public funds into the bank system to help cover the bad loans, which in most cases were originally extended with depositor money.
