International -- Finance
Commentary: Japan's Post Offices Should Stop Being Banks (int'l edition)
It's hard to pity the blue-suited men who work in Tokyo's Ohtemachi district, home to Japan's big banks. Japanese bankers are insensitive to consumers--and forget about shareholders. Back in the 1980s, they lent recklessly, then needed a $65 billion bailout in the 1990s. But they have one complaint that's legitimate: The banks suffer from the unfair advantages given the heavily subsidized state Postal Savings System. Now, the bankers have a plan to privatize the postal system, and no one is listening. People should. Here's why.
With $2.2 trillion in deposits, Japan's Postal System is effectively the biggest bank on the planet. It holds 36% of Japanese personal savings, a share that has risen with the banks' bad-loan problems. The postal accounts have become a serious handicap to creation of a competitive banking market in Japan and even distort international markets. The International Monetary Fund and the U.S. General Accounting Office have both issued reports frowning on the state's outsize role in managing Japan's private wealth.FREE RIDE. The system dates from the late 1880s, when the government authorized post offices to take deposits to give citizens a "simple and risk-free vehicle for small savings." Today, Japan's 27,000 post offices offer every tiny hamlet everything commercial banks do, including loans, currency transactions, and over-the-counter sales of government bonds. No one should begrudge the ill-used Japanese consumer the convenience. What enrages the banks is that the postal system gets a free ride. It pays no taxes, maintains no reserves with the Bank of Japan, and doesn't need deposit insurance. A Japan Bankers Assn. (JBA) study figures the freebies save the postal system $4.2 billion a year.
The postal system is also an aggressive adversary. Employees get generous bonuses for persuading depositors to roll over maturing time deposits. In 2000 and 2001, some $1 trillion in 10-year contracts are maturing that were issued when Japanese rates were 6%. Now, rates are around 2%, yet the postal system has rolled over 55% of what has matured so far. Why? Most Japanese aren't interested in high-risk investments, and subsidies let the postal system offer 1.5 to 2% interest, vs. the 1.5% coupon on benchmark 10-year government bonds. Japan's ailing banks can't afford to challenge the system with better service or higher yields.
Japan's bankers have tried repeatedly to thwart Postal savings, but politicians won't bite. Tokyo, after all, uses the deposit money to manipulate markets. In the '90s, the funds went into stocks to boost prices, into government bonds to depress interest rates, and into public works to stimulate the economy.
Bankers hoped that the 1996 Big Bang financial restructuring would include the postal system's privatization. No way. Instead, politicians took management of the funds out of the Finance Ministry and gave it to a new Postal Services Agency, effective last month.
The JBA now has a new plan. It would split the national savings system into regional banks and privatize them by 2005. But the scheme has virtually no political backing. "In Japan, everybody loves to hate the banks," says HSBC Securities Inc. economist Peter Morgan. JBA Vice-Chairman Akira Kanno admits that the banks lack allies to push through its plan. Perversely, the only real leverage it has is to argue that if it doesn't get its hands on fresh assets, there could be another banking-system crisis. Some predict one as early as March, when Japanese banks must mark to market the badly depreciated corporate stock they count as capital. "To be honest, we would like to say this," Kanno says of the pending crunch, "but we would rather just have people understand it." Very subtle, and very Japanese. But maybe the bankers should be more explicit. They actually have a pretty strong case.By Brian Bremner; Bureau Chief Bremner Covers Japanese Finance from Tokyo.Return to top