Real financial revival is in withdrawing 'bad loan write-off' program: Shii

With budget committee meetings in both houses of parliament scheduled for May 28 and 29 for the discussion of the crisis at Resona Holdings, Japanese Communist Party Chair Shii Kazuo used his weekly news conference on May 21 to give his view on the issue.

Let me talk about what the JCP sees as the crux of the matter and what should be done now.

I would like to point out that Resona's crisis was triggered by the government policy of having major banks speedily write off their bad loans under a program drawn by Takenaka Heizo, minister in charge of economic, fiscal, and financial policy. The so-called Takenaka program demands that banks adopt American standards of calculating equity capital and bank assets. The change of standards has caused a sharp drop in capital adequacy at Resona Bank.

The point is that the government, with a view to hasten write-offs of bad loans, nationalized the bank by injecting over 2 trillion yen (17 billion dollars) of public funds to make up for the shortfall of capital which was artificially made.

The JCP is very concerned about two possible consequences of the Resona crisis:

One is that small- and medium-sized businesses may be hit hard because they account for 46 percent of Resona borrowers. Resona will be writing off its bad loans in the next few years aided using public funds, and its loans to small businesses will be sold off to the Resolution and Collection Corporation (RCC).

The other is that the Resona crisis may drive the other four major banking groups into a competition for a higher equity capital ratio in order to avoid being nationalized. They will be more intent on collecting loans and raising interest rates on loans. All the major banking groups will be thrown into this race.

These two possible consequences will exacerbate the present critical condition. The government has explained that the injection of public funds into Resona Bank is necessary to prevent the financial system from going bust, and that the bank would restart as a sound major supplier of loans to small- and medium-sized businesses and promising businesses. What actually will take place will be the opposite.

The real financial crisis is a credit crunch and loss of financial intermediary function. The Takenaka program has undermined this function. The Bank of Japan with its lax credit policy last year let 15 trillion yen (128 billion dollars) flow into banks, but bank loans to businesses are said to have contracted by 23 trillion yen (188 billion dollars). Banks are putting into practice a tight loan policy. Finance is extremely contracted and almost paralyzed.

The paralyzed situation of finance will further damage the real economy which will in turn aggravate the financial crisis in a vicious circle. The Resona crisis will increase the financial crisis and could eventually destroy the financial system.

Prime Minister Koizumi and Economic, Fiscal, and Financial Minister Takenaka have described the Resona outcome as a reform and not misgovernment at the cost of 2-trillion yen in tax money. Their remarks show that they are so confused that they cannot recognize their own mistakes. They should not be in charge of the national economy.

The urgent need now is to withdraw the failed Takenaka program and dismiss Takenaka from the ministerial post. This will be the first step toward rehabilitating Japan's finance. (end)