Jon Choy Having prodded major domestic banks to implement significant restructuring programs, the staffs of the Financial Supervisory Agency and the Financial Reconstruction Commission have turned their attention to other financial institutions, including regional banks, insurance companies and nonbanks. The crackdown is expected to continue as the FSA extends its inspections throughout the second level of Japan's banking system and the FRC issues tough eligibility requirements for regional banks to receive capital infusions from the government. The import of the regional bank cleanup drive remains a point of debate. Japanese analysts consider it a natural progression of FSA's and FRC's work, now that the nation's biggest banks are on the road to recovery from their bad-loan problems or seemingly headed in that direction.
Overseas observers are less sanguine.
Some skeptics even wonder aloud whether the focus on regional banks is meant to divert attention from major banks still in need of reform. The two sides of the debate do agree, however, that both agencies have much more to do before the country's financial system is restored to health. The FSA has been reviewing the loan portfolios of both groups to develop a snapshot of their financial situations as of last September 30. More than half of the smaller lenders reported net pretax losses due to charges related to bad loans, while the remainder said that similar actions bit deeply into profits. Nevertheless, nearly all asserted that this key indicator of financial health remained above the 4 percent floor set by the FSA and the FRC for domestically focused banks.