Credit uneasiness via “SNS” ⇒ “Deposit-taking racket” via the Internet…
On March 8 of this year, when Silicon Valley Bank (SVB) on the West Coast of the U.S. announced losses from the sale of bonds, credit concerns rose through social networking services, and on the following day alone, March 9, approximately 5 trillion yen ($42 billion) in deposits flowed out, and the bank failed just two days later on March 10. On March 12, New York’s Signature Bank also collapsed.
Furthermore, First Republic Bank (FRC) in San Francisco lost about 9.6 trillion yen ($71.9 billion) in deposits over a three-month period, its stock price plummeted, and it collapsed on May 1. It was the second largest bank failure in U.S. history. The total assets of Japan’s top regional bank, Fukuoka FG, were approximately 28.8 trillion yen (as of the end of 2010), which shows the magnitude of the impact of the collapse.
- March 10_Silicon Valley Bank (ranked 16th in the U.S.)
- March 12_Signature Bank (29th in the U.S.)
- May 1_First Republic Bank (14th in the U.S.)
In less than two months, a total of three banks have failed, an unprecedented situation.
In each case, credit concerns grew through “social networking” sites, and there was a run on deposits, including online, which led to the outflow of deposits in a short period of time, resulting in the bank’s failure. These deposit runs via social networking sites and the Internet are also known as “digital bank runs.
Deposit Runs” Occur Often in Japan
In both the U.S. and Japan, for example, banks do not always have ¥10 trillion in cash in their vaults ready for withdrawal in response to ¥10 trillion in deposits. Deposits are used as a source of funds for lending to corporations, etc., and deposits are not expected to be withdrawn in large quantities in a short period of time. Therefore, if a large amount of deposits were to flow out in a short period of time, for example through the Internet, it would become difficult to manage the funds, and the bank would be forced into bankruptcy.
Although many people say that “the situation is different between Japanese and U.S. banks” and “Japan’s financial system is rock solid,” do you know that deposit outflows and runaway failures have actually occurred frequently in Japan as well?
The “hoax fiasco” in Aichi and Saga
In 1973, exactly 50 years ago, a high school girl’s joke about the danger of credit unions spread by word of mouth at Toyokawa Shinkin Bank in Aichi Prefecture, causing a bank run. 20 years ago, in 2003, a hoax e-mail triggered a bank run at Saga Bank in Japan, In 2003, a bank run by Saga Bank occurred as a result of a hoax e-mail.
The above cases in Aichi and Saga were caused by unsubstantiated hoaxes. However, in 1995, when the bubble economy burst and bad loans became a major problem, there was a run on Cosmo Credit Union and Kizu Credit Union, which subsequently went bankrupt. It was widely reported on NHK news and in newspaper reports at the time, and many readers may remember it.
The biggest postwar “installation racket” broke out
Then, on November 26, 1997, the largest postwar “run on the house” broke out all over the country.
On the 3rd, Sanyo Securities, on the 17th, Hokkaido Takushoku Bank, on the 24th, Yamaichi Securities, on the 24th, and every week in November of that year, major financial institutions went bankrupt one after another. The collapse of Deogyang City Bank on the 26th triggered an outbreak of nationwide panic.
From major banks such as Yasuda Trust & Banking, Mitsui Trust & Banking, Long-Term Credit Bank of Japan, and Nippon Credit Bank, which had long been rumored to be in financial trouble, to major regional banks such as Ashikaga Bank and Kiyo Bank, there were long lines of people waiting to cancel their deposits before the doors of their branches in Sapporo, Utsunomiya, Tokyo, Nagoya, Osaka, Fukuoka, and many other locations throughout Japan. Before they even opened, long lines of people were waiting in front of their branches to cancel their deposits.
Queues also formed in Tokyo, Nagoya, Osaka, and Fukuoka
I remember this event vividly as I was working at a securities company in Kabuto-cho, Tokyo, in 1997. I remember feeling a strong sense of anxiety about what was going to happen to Japan.
In accordance with a notice from the financial authorities and the bank’s internal manual, the bank tried to make the lines and congestion as inconspicuous as possible by letting depositors who had lined up outside into the store before it opened and asking them to wait in reception rooms or conference rooms, in order to avoid the panic that would have resulted from the lines.
At one branch of Yasuda Trust & Banking, the numbering of numbered tickets was stopped at ninety-nine, and after the ninety-ninth person, no matter how many, was given the “ninety-ninth number. It was a measure to prevent upsetting depositors.” (“Ten Years of Financial Straying,” Nihon Keizai Shimbun, ed.
Fortunately, almost all the media “refrained” from reporting on the installment, so the furor did not spread any further.
Except for telephone calls and word-of-mouth, newspapers and TV and radio news were the mainstream for information transmission in those days. At that time, the number of Internet users was limited and there were no social networking services such as LINE or Twitter. The first iPhone went on sale in June 2007, 10 years before the first iPhone was released.
Never underestimate the power of SNS
However, a major difference between Reiwa’s era and 1997 was the spread of the Internet and SNS, as symbolized by the bankruptcy of SVB in the U.S., where messages and videos spread quickly via SNS, and the spread of Internet banking, where large amounts of money can be transferred with a single click, It will give financial institutions and financial authorities no time to prevent the outflow of deposits.
As was the case with SVB, a system downtime caused by a concentration of depositor access would add fuel to the fire. Now, installations do not happen at the bank counter, but online, 24 hours a day, 7 days a week, 365 days a year.
At an April 6 meeting of the House of Representatives Committee on Finance and Monetary Affairs, Minister of Finance Shunichi Suzuki also stated that “credit concerns have advanced at a very fast pace due to the use of SNS and other factors,” and that “Internet banking, which does not depend on time and place, has accelerated the outflow of deposits.
Payoff system” and other measures are in place in case of emergencies.
In Japan, the payoff system protects deposits up to 10 million yen in the event of a bank failure. In addition, as in the U.S. and Europe, exceptional measures such as full protection of deposits, injection of public funds, and temporary nationalization are also in place.
Regarding financial instability in Europe and the U.S., the new BOJ governor Kazuo Ueda says that Japan’s financial system is sound and that Japanese banks have sufficient capital to withstand losses, saying, “Japanese financial institutions are well capitalized and have ample liquidity, and we do not expect this problem to have a major impact on our economy at this time.
While this is certainly true, there are some circumstances unique to Japan that are not found in the West. These are: 1) a shrinking domestic market due to population decline and depopulation, and 2) a shift away from banks due to the entry of different industries and the shift to digitalization. In particular, many regional banks are finding it virtually impossible to survive on their own, and are steadily restructuring their branches and workforces and merging with other banks to create a “one bank per prefecture” system in order to achieve economies of scale.
In Japan, it is unlikely that there will be an immediate outflow of deposits or a run on the banks, but a Reiwa version of a “run on the banks” will suddenly start through social networking services and Internet banking.
What is a “target bank”?
Are there any banks in Japan that could become targets?
Banks that have a high percentage of deposits via the Internet, a high inclination toward start-up companies, few transactions with local individuals and small and medium-sized businesses, small assets, large deposits, losses or declining revenues and profits, frequent scandals and system failures, large unrealized losses on bonds, weak capital, reluctance to merge or enter into business alliances, etc. are likely to be targets. are likely to become targets.
The most recent examples are Suruga Bank’s share house scandal and Mizuho Bank’s system trouble, which led to a temporary outflow of deposits.
In particular, be wary of deposits made via the Internet. While they can attract customers from all over the country regardless of their business area, they are also fast to flee because of their focus on interest rates. Once a rumor of financial instability is circulated on social networking sites, deposits can be cancelled or transferred with a simple click of a button.
Some regional banks and credit unions are conducting periodic mock drills as part of their business continuity plans (BCP), based on the assumption that a financial crisis may occur.
Both the financial authorities and financial institutions are beginning to prepare for the worst-case scenario, which could be a financial crisis originating in Japan, starting with the outflow of deposits via social networking services.
Text： Katsuhide Takahashi
Financial analyst and president of Malibu Japan Co. Visiting professor at the Graduate School of Project Design. After working for Mitsubishi Bank, Citigroup Securities, and Citibank, he established the financial consulting firm Malibu Japan in 2001. He has visited more than 60 countries around the world. He is an expert on resorts in Japan and abroad, including the Bahamas, Maldives, Palau, Malibu, Los Cabos, Dubai, Hawaii, Niseko, Kyoto, and Okinawa. He is also a well-known collector of "Star Wars" movies. He graduated from Keio University in 1993 with a bachelor's degree in economics and received a master's degree in economics from Aoyama Gakuin University in 2000. He is the author of many books, including "Bank Zero Era" (Asahi Shimbun Publications), "Why Niseko Only Became a World Resort" (Kodansha), and "The Extinction of Regional Banks" (Heibonsha).