The government decision to inject taxpayer money into Resona Holdings, the nation's fifth-largest banking group, is a fresh reminder of the fragility of the Japanese financial system. There have been no bank runs, but confidence in bank management has been shaken again. Until very recently Resona executives had consistently denied any capital shortage.
A sense of deja vu is unavoidable. For years both bankers and officials have tried to put a good face on the bad-loan problem, saying there is no need to panic. In fact, no one seems to have panicked following the collapse of some banks -- including large ones. Yet there is no denying that failure to look squarely at the problem has delayed hard decisions.
The Resona bailout means a de facto nationalization. Perhaps the Financial Services Agency, the bank regulatory body, cannot escape criticism for that. Such action could have been avoided if the FSA had issued early warnings against capital depletion and ordered the bank to take corrective steps. In this sense, a strong case could have been made for a "preventive bailout" -- injecting cash before it was too late.