Japanese official reveals banks are in deep trouble He says capital reserves are dangerously low

others dismiss remarks


WASHINGTON -- Japan's top financial officials have told their American counterparts that their country's banking system is acutely short of capital, with the top 19 banks in deeper trouble than Tokyo has ever before admitted, according to officials familiar with the weekend discussions.

At a private meeting Saturday, the governor of the Bank of Japan, Masaru Hayami, told Treasury Secretary Robert E. Rubin and Alan Greenspan, the chairman of the Federal Reserve, that the capital supporting those 19 major banks has dwindled to dangerously low levels in recent months.

The capital reserve levels are now so low that these banks of the world's second-largest economy might be banned from operating internationally "if the rules were vigorously pursued," said a senior Japanese official, relating the conversation.

But yesterday, in a reflection of the enormous confusion surrounding Japan's financial crisis, other senior Japanese officials disputed Hayami's presentation and insisted that the reserve levels have not declined to dangerous levels.

Banks that want to operate globally are required to keep on hand capital amounting to at least 8 percent of their outstanding loans. Fewer and fewer of Japan's banks can meet that standard today. Hayami's remarks suggest some may fall below the 4 percent minimum for operating within Japan's borders.

Japan's conflicting explanations came as leaders of the world's major economies met here for a second day at the annual meetings of the World Bank and the International Monetary Fund to grapple with an economic crisis that many fear is out of control.

Many finance ministers warned that without a radical strengthening of the international financial system the crisis will spread far beyond Asia and Russia to affect the whole developing world.

Yesterday, Rubin again pressed for changes at the fund and the bank that would improve their ability to head off crises.

"Strengthening the response to the current crisis and creating a modern framework for the global markets of the 21st century will not be easy or quick," Rubin said before the committee that oversees the IMF's operations.

But many officials here, including James Wolfensohn, president of the World Bank, argued yesterday that countries should focus their energies on the immediate crisis and postpone a broader discussion of remaking the global financial system.

Bolstering Japan's ravaged banking system is considered by many experts the single most critical factor in quelling the global financial turmoil that has rocked markets around the world.

But there are still disputes, inside Japan and beyond its borders, over just how much trouble the banks are in.

U.S. officials said that at the meetings yesterday they were successfully building support for a proposal by President Clinton to change the strategy of the IMF, so that it can offer pre-emptive aid to countries that are fundamentally healthy, but in danger of runs on their currency or their banking systems because of "contagion" from other stricken nations.

Pub Date: 10/05/98

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