The collapse of Ashikaga Bank, a major regional bank in Tochigi Prefecture, shows that Japan's debt-heavy banking system is not yet out of the woods. The government, which has nationalized the bank temporarily, is expected to provide a cash injection of more than 1 trillion yen. The bank will be sold to private interests after it is duly restructured. Meanwhile, deposits will be fully protected, and business will continue mostly as usual.
The reason for the bank's failure is all too familiar. Like other major lenders during the booming 1980s, it made lavish loans to the real estate industry. But many of those loans went sour after the bubble burst in the early 1990s, leaving it with piles of bad debt. And it was slow, as were other lenders, in cleaning up the mess.
Ashikaga Bank is the flagship bank for Tochigi residents, serving as it does all of the 49 cities, towns and villages in the prefecture. It holds 40 percent of all deposits in the district. But its fortunes declined rapidly in recent years as prolonged recessions hit local business and industry hard.