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Cash recouped from Japan's past crisis

JAPAN recouped much of the public money it pumped into banks during the country's financial crisis last decade, when toxic loans totaled as much as US$1 trillion, a top regulator said yesterday.

Japan endured an economic and financial malaise in the 1990s known as the "lost decade" after a real estate bubble, built on excessive lending, burst. Insolvent lenders propped up by government bailouts became known as "zombie" banks, and cast a long shadow over the world's second-largest economy.

The banking system of the 1990s was burdened with 90 trillion yen (US$930 billion) to 100 trillion yen of bad loans, Financial Services Agency Commissioner Takafumi Sato said yesterday at the Foreign Correspondents' Club in Tokyo.

Banks have repaid 8.45 trillion yen of the 9.6 trillion yen of public money injected into the financial system during the troubled decade.

"That was good business in retrospect," Sato said.

Reflecting the views of other Japanese officials and analysts, Sato said that what Japan underwent offers lessons for the global financial crisis unfolding today, including the need for public money to prop up banks.

"We have argued that Japan's experience in the 1990s provides useful suggestions as to how our fellow regulators should respond to the ongoing difficulties," he said.

Japan's experience also shows how critical it is to remove toxic assets from bank balance sheets, Sato said, adding that such measures weren't about saving individual banks but about preserving the financial system.

Sato said the exposure of Japanese financial institutions to the latest crisis was minimal, partly because they weren't "innovative," and hadn't invested in what turned out to be risky securities.

Japan's top banks sank into the red for the fiscal year ended March because of losses on stock holdings.


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