Daiwa Bank Eviction Triggers Shock Waves U.S. Action Embarrasses Japan’s Powerful Ministry Of Finance
As the news sinks in that Japan’s 10th-largest commercial bank has been booted out of the United States, financial analysts and ordinary Japanese have begun to consider the ramifications.
For the nation’s powerful Ministry of Finance, the action is being seen as the biggest slap yet to a bureaucracy long considered infallible at home and a formidable force abroad.
Daiwa’s U.S. branches were ordered closed Thursday by the Federal Reserve and other regulators for illegal banking practices. That action, and a separate criminal prosecution of the bank for allegedly covering up $1.1 billion in trading losses, represents one of the most far-reaching crackdowns ever against a foreign bank in the United States.
Richard Koo of Nomura Research Institute said the Finance Ministry’s six-week delay in informing U.S. authorities of the losses and 30,000 unauthorized U.S. bond trades over a 12-year period was considered unforgivable among world financial regulators.
“I think this is the Fed’s way of saying the Japanese system has a problem that goes beyond this one particular incident,” Koo said. Indirectly, he said, U.S. regulators are speaking out “against the way the ministry handled the situation.”
On the streets, the move was seen with grim resignation and a bit of incredulity.
“That’s a very harsh measure,” said 63-year-old Yasushi Shiono, who was out walking Friday with his wife. “What happened could not be helped, I think.”
“Daiwa was some kind of scapegoat,” said taxi driver Yasumi Tamura. “It would be unthinkable in Japan to kick out an American bank.”
The U.S. action against Daiwa represents the harshest punishment ever meted out by U.S. regulators against a Japanese bank.
Even as they scrambled to play down the impact, Finance Ministry officials acknowledged the need to beef up their vigilance of institutions under their watch.
Finance Minister Masayoshi Takemura said his ministry was “committed to further promote exchange of information with supervisory authorities of other countries and to strengthen our supervision and inspection over Japanese banks’ overseas branches and offices.”
The apparent loss of confidence in the ministry comes just as it is trying to ease concerns at home and abroad about its ability to help Japanese banks dispose of hundreds of billions of dollars of bad loans left over from the high-flying 1980s.
“In the past, foreign banks, regulators and investors assumed that even though the accounting system was opaque, they had faith that at the end of the day the Ministry of Finance and Bank of Japan knew exactly what was going on behind the closed doors of Japanese banks,” said analyst Brian Waterhouse of James Capel Securities.
“That faith has now been shaken, perhaps irreparably,” he said.
For ordinary Japanese, faith in the ministry appears to be on the wane as well. This summer, panicked depositors rushed to yank their money out of troubled credit unions even though the ministry promised to protect all deposits.
Daiwa said Friday it accepts the shutdown decision but will fight the criminal indictment.