Summary

No news has ever unveiled so clearly the problems of the Japanese financial system and its lack of information disclosure than the announcement made by the Ministry of Finance (MOF) on January 12. According to the announcement, the total amount of non-performing loans amounted to 77 trillion yen, about three times larger than the figure of 28 trillion yen that was initially announced by the MOF.

In addition, it was found out that the secret arrangements had been made between the MOF officials and the employees of major banks over the schedule of inspections conducted by the MOF. It has been made clear already that major banks have a department within itself which is in charge of the relationship with the MOF and the employee of such department had been wining and dining the MOF officials in order to sound out the date of inspections in advance.

It has been said that the Japanese financial institutions are under the protection of the MOF. The Banking Bureau of the MOF has exercised the leadership by using administrative measures. It has been the practice of the Japanese banks to unanimously follow the policies of the MOF which are issued in the forms of orders, guidance or notifications.

The fact that the major banks have a department in charge of the relationship with the MOF implies the importance of the information obtained from the MOF for the banks.

MOF not only controls the budget allocation but also regulates, guides and controls financial institutions. It has been taken for granted that the powerful government officials who are retired from the MOF serve as an intermediary between private financial institutions and the MOF by assuming a management position in a private bank.

Then, what are the structural problems facing Japan?

It is reported that private banks excessively entertained the MOF officials in order to sound out the dates of inspections in advance, and some MOF officials requested to be entertained.

But, why do only banks have to have such department which is responsible for the relationship with the MOF? It is important to explain the roles played by such department from the structural point of view.

The people who are responsible for the relationship with the MOF came to assume an important role from the 1970's. Up until then, the negotiations and communications with the MOF were conducted directly by the heads or the executive officers of banks.

There is a reason for the fact that private banks created such department as planning department or comprehensive planning department, which is in charge of the communications with the middle-class MOF officials and the creation of personal network between the MOF. In particular, with respect to the adherence between banks and the MOF officials concerning the date of inspections, major banks, which do not want to announce the amount of non-performing loans, wanted to know the date of inspections in advance so that they have enough time to conceal the amount of these loans.

Since the adherence between banks and the MOF came to the surface, banks are prohibited from having the department responsible for the relationship with the MOF. In order to prevent the collapse of government officials, the public official ethic law is on its way to enactment. In the future, we many not see any more corruption.

Then, how will the private sector collect information from the MOF?

The private sector will continue to collect information from the MOF under the surface by using whatever channel available to them such as diet members from the MOF or the secretaries of such diet members. We will not be able to change this custom because it has been handed down from the end of the Second World War.

The former MOF officials, who have been benefited in fund raising by taking advantage of their personal network of the former MOF officials and by exercising influence over private companies, would not have imagined the scandal now facing them.

Regardless of whether we like it or not, the Big Bang of the financial system is inevitable. What financial institutions have to do before the revision of the Foreign Exchange Control Law is to disclose their information.

Now is the time for financial institutions to make strategic plans and implement them in order to survive the Big Bang. However, in reality, they are still concealing non-performing loans and do not take any active measures.

This attitude of banks is the factor that stirs up foreign investors' anxiety.