Can Japan's ailing banking system be cured?

Japan's non-performing loan problem is not going away. Despite efforts to clean up the mess, the Japanese government estimates that banks are still mired in ¥43 trillion in problem loans, and private analysts say the actual figure may be much higher. While Prime Minister Koizumi has said he will stick to his plan to promote the disposal of banks' bad debt over the next three years, he faces stiff resistance to restructuring from factions within his own party. With Japan's economy still seriously hobbled, many worry that the cure could be worse than the disease, with bank restructuring sparking more corporate bankruptcies and higher unemployment. On the other side of the coin, major questions remain over how to restore corporate Japan back to health. Still, analysts see some signs of positive change in Japan's banking system. They point to tougher regulatory oversight by the FSA, the recent spate of bank acquisitions by American funds like Ripplewood and WL Ross, and consolidation within the industry. But while these may be steps in the right direction, analysts say much more will have to be done to address the problem of non-performing loans if Japan is to avert a full-blown banking crisis. Can Japan's ailing banks be cured? How will loan workouts and corporate restructuring proceed? This half-day conference tried to answer those questions by bringing senior Japanese and American politicians, policymakers, bank executives and analysts together to discuss the prospects for reform within Japan's banking system and the continuing efforts to tackle the bad loan problem amid worsening economic conditions at home and abroad. The conference was organized by Japan Society, New York and the Center on Japanese Economy and Business of Columbia Business School