Major Three Banks to Set up a Holding Company in 2000 to be World's Biggest

JPS, 08-066, 20 August 1999

TOKYO AUG 20 JPS—Akahata on August 20 reported on a plan of two major commercial banks, the Dai-Ichi Kangyo Bank and the Fuji Bank, plus the Industrial Bank of Japan specialized in industrial finance, to set up a financial holding company in the year 2000, with a view to increased competitiveness based on complete cooperation among them.

As of the end of March 1999, the total asset of these three banks is 141 trillion yen, far greater than Japan's biggest bank Tokyo Mitsubishi with 69 trillion yen, and will become the world's biggest.

This plan is designed by the three banks to survive the financial big ban in the international financial market, because each finds it difficult to survive on their own because of the bad loans they had during the bubble economy.

If this plan is put into practice, it will be the first financial holding company under the law on financial holding company which was approved by the Diet in December 1997, to which the Japanese Communist Party opposed. A financial holding company can exclusively control financial institutions including banks and insurance companies, without doing any business on its own.

In 1997 the JCP opposed this legislation on the following reasons: (1) The law allows banks to engage in risky and speculative securities transactions, at the expense of insecurity of deposits of ordinary people; (2) it allows a bank's holding maximum of other company's stocks from 5% to 15%, which will result in increased control by banks over industry and weakened position of small- and medium-sized businesses.

The postwar Anti-Monopoly Law prohibited a holding company, based on reflection that the big zaibatsu such as Mitsui and Mitsubishi promoted Japan's war of aggression in the Second World War by utilizing their political and economic control through holding companies.

Hiroshi Okumura, professor at Chuo University, critically commented on the plan, with this question, Is it really good to be big? He said: Apparently the plan is a big gamble for survival of the three banks each of which has a weak point. Financial authorities will welcome the plan as part of financial reorganization. But there is no proof that being big is really good for a bank and to the Japanese economy. In the 21st century, functions of account settling and intermediatory financing will be more specialized and differentiated. Merger into a bigger bank is contrary to the trend. Another problem is that a major merger will accompany dismissals of workers in the name of restructuring. (end item)