[talk] Round Table Talk among Anonymous Members of the Financial Industry: Does the Banking Sector have a Strategy for the Revitalization of Banks?

As a study of the Takenaka Plan progress, the issues of accelerating the final disposition of non-performing loans and nationalization of banks have been raised. What do the top officials of major city banks think of such a situation? The participants of this talk explained that the process of deflation increased the non-performing loans looking at the situation of their branches and relationship with the customers. They also had common recognition that the tightening of credit, etc. directed towards nationalization would cause the chain reaction bankruptcies of small and medium sized enterprises and deflation would become even worse. Concerning nationalization, while some stated that this would be unavoidable, others stated that it would take some time to get to such a point if we consider tightening of credit to avoid nationalization and transrormation from an international bank to a domestic bank. Concerning the reconstruction of how to manage a bank, it became clear that the business model of banks as lending organization itself no longer work under the condition of the declining demand for credit, and that there were great difficulties for banks to recover their functions as banks during such deflationary periods. The issues of deflation was emphasized during this talk, and even if public funds were to be infused, non-performing loans would increase as long as deflation continues, and there were concerns that the problem would exist for long term even with nationalization. Concerning the change of bank management, there were opinions that even with the change in management, banks would not change, but younger bank officials expect that with the introduction of younger management, the problem of credit would be solved through the infusion of public funds, etc. Furthermore, they unveiled underlying thoughts among the bank officials that with regard to the situation of credit withdrawals, the workers in the field wanted to treat borrowers valuable as they are the source of revenue, but that due to profitability being a goal, the credit review would not give approval for such borrowers, and hence, there was a dilemma between the improved profitability and the increase of lending volume being conflicting objectives. Also, doubts were raised whether we try to reconstruct banking sector seriously. Because the portfolio of major banks approximates that of Japan as a whole, we will encounter a fallacy of composition whereby deflation would be accelerated and it requires a considerable burden to the nations. In the present circumstances, government managed economy has bee continuing where the space created by market shrink was filled by the credit granted by the government, and it would tend to imagine a resolution by a great depression where private sector debt would be offset against savings. Recognition was raised that the government must clarify its position whether it will choose inflationary policies to overcome the problem or whether it will live with deflation and how to estimate the cost of such policy to the nations.