1/02/2006

J-List side blog: all about Japanese banking, and forces at work on banks in Japan

Akemashite Omedetou, all about Japanese banking, and forces at work on banks in Japan

Hello and Akemashite omedetou gozaimasu to everyone. We hope you had a really fun New Year's blast -- we certainly did, although it was a little bizarre. We're here in San Diego, so we had a pretty traditional (for America) celebration, with champagne, funny hats and the Times Square countdown on TV. But we didn't want to give up our Japanese-style Dec. 31st experience, so we ate traditional toshi-koshi ("crossing into the new year") noodles and mochi (the oddly named 'rice cakes' which is just white rice pressed into squares that are heavenly toasted and covered with soy sauce). For the first time in ten years we were unable to watch the big JPOP extravaganza Kohaku, the most-watched show of the year in Japan, but we've got it waiting for us on the DVR at home.

The subject of Japanese banks is an interesting one. There are two kinds of traditional Japanese banks, the so-called "city banks" like Sumitomo or Tokyo-Mitsubishi, which are well-known national institutions; and the hundreds of small and medium-sized provincial banks that serve the regions outside of Tokyo. The banks do pretty much what you'd expect them to do -- hold deposits, make loans and offer various financial services -- but there are some big differences. First of all, Japanese banks are the most conservative in the world, and they are terrified of new ideas; as a result Japan's online banking world is a decade behind the likes of Wells Fargo. While most businesses try to differentiate themselves from their competitors, Japanese banks nearly always compete by trying to be exactly like their peers, right down to the interest rates offered, which are so low you'd laugh (one of the best rates offered by our local bank is 0.1% on a 5 year CD). This seems to be related to the concept of shinrai, or trust -- if a bank acts exactly as you expect it to, it earns your trust more quickly.

There are two external forces at work on Japan's banking world right now. One is Japan Post, the soon-to-be-privatized post office. In addition to delivering the mail, Japan Post acts as the largest bank in the world, securing the deposits of millions of Japanese families with an unbelievable $3.5 trillion in cash -- about equal the annual GDP of Japan itself. Despite the reality that Japan has a perfectly healthy banking sector that could provide these services, the government-backed postal savings system plays the part of the proverbial 800 lb. gorilla and interferes with the normal functioning of banks -- and pays no taxes by the way. The other force Japan's banks have to contend with are the gaishi-kei, foreign and foreign-backed banks that are the principle source of actual competition in the banking world. Some, like the all-online Shinsei Bank, even have -- gasp! -- gaijin CEOs!

J-List side blog: Akemashite Omedetou, all about Japanese banking, and forces at work on banks in Japan

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