By Brian Bremner You could call it the 800-pound gorilla of Japanese finance. I'm talking about Japan's postal-savings system, which controls roughly $2 trillion worth of deposits -- a figure that dwarfs that held by all of Japan's major commercial banks combined. Japanese post offices have doubled as deposit-taking institutions since the 1880s. Back then, the government hoped the move would encourage savings, give it more money to play with, and provide rudimentary banking services to rural areas.
But that was more than a century ago. Japanese bankers have been urging the government to get off their turf for years. And now comes word that the powerful Japan Bankers Assn. has launched yet another public-relations blitz to persuade the coalition government of Prime Minister Yoshiro Mori to dismantle the system by refashioning the postal institutions into smaller regional banks and eventually selling them at public auction.
PITY THE PIN-STRIPED. It pains me to say this, but I feel sorry for Japan's pin-striped set, toiling away in the towers of the financial districts of Ohtemachi. Starting in 1996, Japan's Big Bang financial reformers began to lower the segmented walls between banks, brokers, and life insurers, and competition in every financial-market niche that matters has increased.
Even worse, from the bankers' perspective, foreign players have jumped into Tokyo's financial markets or extended their reach at the Japanese banks' expense. Citibank Japan has been knocking the stuffing out of its local counterparts for years, and its deposit base is expected to hit $25 billion or so this year. Foreign players, with their superior information technology systems and risk-management practices, have bought banks outright.
Long Term Credit Bank of Japan, now known as Shinsei Bank, is owned by a group of investors led by New York's Ripplewood Holdings. And just last week, a U.S. private-equity fund called Lone Star picked up a failed regional bank called Tokyo Sowa Bank.
NO TAXES. What Japan has now is a government pushing its banks into a very hostile deregulated environment. But at the same time, the government effectively controls the biggest bank on the planet, with its branch network of roughly 27,000 post offices and incredible marketing clout. Oh, one more thing -- it doesn't pay any taxes, which the commercial-banking industry does, an effective subsidy of $400 million or so, figures the JBA.
Last year, it looked like things might change to the advantage of commercial banks. Some $1 trillion worth of deposits were expected to flow out of the state-controlled postal-savings system over the next two years, as Japanese sought higher returns for their household savings elsewhere. At stake were 10-year time deposits that, when issued, offered interest rates of 5% to 6%.
With Japan's real interest rates at near-zero levels, after years of monetary easing designed to rescue the economy, the betting was that a big chunk of the deposits would go elsewhere in search of higher returns, such as mutual funds or a better array of services offered by Japanese commercial banks.
INDOMITABLE SAVERS. But then the clout of the postal service surprised everyone. It blanketed Japan with a taxpayer-subsidized mass mailing to persuade people to roll their yen over into a new time deposit. Every time you walked into a post office, it was hard to miss the placards pleading with depositors to stay put. Well, it seems to have worked, though locking up your money for a 1% or 2% return doesn't seem particularly swift. But that's how the Japanese have saved for years -- and this is a country of indomitable savers.
So far, the postal service has been able to retain about 58% of the time deposits that have come due. Maybe this has something to do with convenience. In most parts of Japan, there's a post office a short walk away. Or maybe it comes down to the calculation that the Japanese government is less likely to go bankrupt than a Japanese commercial bank.
One reason Tokyo officialdom likes the current system is that the $2 trillion or so is in one big piggy bank. Some deposits are repackaged into loans for fiscal spending on huge public-works projects that are nice for the officials' friends in the construction industry. And sometimes the money is steered into the bond market to keep long-term rates at all of 1.8%, so the government can issue more and more debt to spend the country into fiscal oblivion.
RAISING PRIVATE MONEY. New reforms taking effect later this year are supposed to cut the ties between the Finance Ministry, which manages the postal-savings system, and Japan's patchwork of state-owned companies, such as the Japan Highway Public Corp., which are big beneficiaries. Down the road, they'll have to raise money in the private-capital markets just like anybody else.
Well, if that's the plan, why doesn't the Japanese government liberate that $2 trillion so it can be put to more productive use? You got me. My guess is that it will hold onto that loot as long as it can. And that could be for some time yet. As a political constituency, Japanese bankers are kind of a sad joke. Their shoddy lending practices brought Japan the bubble economy and its aftermath. They received a $65 billion bailout funded by taxpayers in 1998.
A more unloved bunch in Japan would be pretty tough to find. But when it comes to a choice between the banker and the postman, it's really no contest. Pity the poor, poor banker. Bremner, Tokyo bureau chief for BusinessWeek, offers his views every week in Eye on Japan, only for BW Online