EDITORIAL: ShinGinko debacle

The Tokyo metropolitan assembly's special budget committee on Wednesday approved the controversial injection of 40 billion yen in fresh capital into troubled ShinGinko Tokyo, a bank established under Governor Shintaro Ishihara's policy initiative. The step is expected to pass the full assembly on Friday. This means a huge amount of taxpayer money will be poured into a failing bank without any prospect of turning it around. The metropolitan government and the assembly have done serious harm to the interests of Tokyoites by embarking on this dubious rescue of a lender choking on bad loans.

We have repeatedly urged the metropolitan government to drop its capital infusion plan and pull out of the banking business. There are obvious reasons for pulling the plug on the bank. The institution has next to no chance of regaining financial health. Nor does it have any vital mission to carry out. Trying to keep it alive will only cause more money to be lost. Closing the bank quickly would help minimize the losses for Tokyo's taxpayers.

Since it started operations in 2005, the bank has accumulated 100 billion yen in losses through a reckless lending policy that didn't even demand collateral or guarantors for loans. These losses have already wiped out the 100 billion yen in capital the metropolitan government provided, courtesy of taxpayers, to establish the bank.

The metropolitan government has drawn up a turnaround plan designed to reduce both deposits and loans sharply while doubling revenue to secure profitability. That's pure fantasy. The planned cash infusion can only be seen as a temporary ploy by Ishihara and other top metropolitan government officials to avoid being held accountable for the mess.

Much of the blame rests squarely on Ishihara's shoulders. At the end of the assembly deliberations on the proposed financial relief, Ishihara apologized for the problems the bank had caused. It was the first time for him to do so.

"With regard to the metropolitan government's responsibility to supervise the bank, the ultimate responsibility rests with me as the top executive. I deeply apologize for the situation," he said.

But as head of the Tokyo government, Ishihara only accepted nominal responsibility for the outcome of the enterprise. During his re-election campaign, Ishihara promised to create a new bank mainly for cash-strapped small businesses. Throughout, Ishihara has been the central figure in this banking exercise. He led the bank's unique management policy, ignoring warnings and criticisms. His apology can only be taken as an attempt to avoid bearing all the blame for the bank's mismanagement.

Ishihara should at least hold a news conference to offer his sincere apologies to Tokyo taxpayers and return his monthly salary of 1.4 million yen. The ruling coalition of the Liberal Democratic Party and New Komeito also have a grave responsibility for supporting the cash injection.

When the bank opened its doors for business, the metropolitan assembly approved the capital investment with an additional resolution demanding that the metropolitan government also monitor and supervise the bank's management. In a move inconsistent with the resolution, the two parties gave the green light to the recapitalization even though the metropolitan government has failed to fulfill its oversight responsibility. When Tokyo's voters go to the polls next summer to elect a new metropolitan assembly, they should recall how the ruling parties dealt with this crisis.

The planned cash infusion will not change what needs to be done to clean up this mess. First, the bank's financial standing, including the actual amount of bad loans, must be vigorously examined and assessed by outside experts. That can only be done through audits by the Financial Services Agency, the nation's banking regulator.

At the same time, the bank's operations must be kept under close watch. Steps to close the bank must be taken as soon as it becomes clear that there is no chance of its financial rehabilitation. The assembly should waste no time in implementing the additional resolution calling for the creation of a watchdog organization. Recalling the banking woes that haunted the economy for years would be enough to understand that sweeping the problem under the carpet won't make it go away.

Wasteful spending of taxpayer money is simply unacceptable.

--The Asahi Shimbun, March 27(IHT/Asahi: March 28,2008)