We can either recapitalize the banks again, or we can just let them go bust. Mr. Shiozaki is perhaps the boldest of a growing group of politicians, economists and government officials who think that Japan never entirely repaired its banking system after many banks stumbled into crisis in autumn 1997, falling victim to profligate lending policies and social pressure to maintain relationships, whatever the cost. But politicians, they say, would not sanction such radical surgery. Although a second injection of public money into the banking system may be unlikely, the government has proved itself adroit at devising bank rescue programs in disguise. He says he doubts that all bad debt has been properly classified and that real estate collateral has been properly valued.
Officials are more optimistic.
In the fall of 1998, the government enacted sweeping financial overhaul legislation aimed at setting the banking system, which had nearly collapsed within the preceding year, back on its feet. The commitment to financial reform continues to be strong. While an impressive wave of consolidation in the last two years has reduced the number of Japan's biggest banks by half, to 10 from 30 two years ago, it has yet to produce obvious efficiencies. Nor has consolidation noticeably changed the type of business that banks in this country do or the way they do it. To make matters worse, the banks' basic lending business remains in a prolonged slump.