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. Last Updated: 07/27/2016

Fresh Woes Hit Japan's Banks

COMBINED REPORTS


TOKYO -- Japan's fragile financial system showed further fractures Wednesday as a small regional bank collapsed and speculation intensified that one of the country's largest and most troubled banking companies might seek a bailout.


The demise of Tokyo City Bank and the rumors of a possible rescue of the much larger Yasuda Trust and Banking Co. came a day after Japan's stock market tumbled 5.11 percent following the collapse of Yamaichi Securities Co., the country's fourth-largest brokerage firm. The Tokyo shutdown was the fourth closing of a financial institution here this month.


Moody's Investors Service also cast doubt over Japan's finance sector putting five banks under review for a possible downgrade.


Under review are Mitsui Trust and Banking Co. Ltd., Long-Term Credit Bank of Japan Ltd.,Yasuda Trust and Banking Co. Ltd., Nippon Credit Bank Ltd. and Chuo Trust and Banking Co. Ltd..


The deterioration in Japan's financial system coincided with urgent efforts by the nation's dominant Liberal Democratic Party to devise a plan to use public funds to steady the system.


A senior Bank of Japan official, speaking on condition of anonymity, said the government may announce a plan Dec. 10, the day it is scheduled to introduce a package of tax reforms.


"Things are unfolding very rapidly," the official said Tuesday.


Finance Ministry officials have said the central bank has already loaned 2.7 trillion yen, or about $21.3 billion, in what it describes as a kind of bridge financing to Hokkaido Takushoku Bank, which was closed last week, and Yamaichi, which collapsed over the weekend.


The bank official refused to confirm that figure, though he conceded that Yamaichi alone had already cost the government somewhere between 500 billion yen and 1 trillion yen.


"That's a cost we have to bear in order to build a new, transparent financial system, and we're prepared to," the banker said.