Incubator Bank of Japan, which specializes in loans to small and medium-size enterprises, filed for bankruptcy last Friday. With it, the assumed infallibility of the Japanese bank failed as well – a profound moment.
In Japan, corporations typically partner with a bank from inception, and never change. The loyalty of companies to their banks, and vice versa, is therefore extremely high. Traditionally, this meant that a bank would give loans to its corporate partners, even when it was clear that these companies were on the brink (or over the brink) of insolvency: this was considered "dedication."
The failure of Incubator Bank is profound because the bank was actually allowed to fail. The Deposit Insurance Corporation of Japan - which protects customer deposits up to 10 million yen - was instituted way back in 1971, yet this is the first time is has ever been used.
Though Incubator Bank is relatively small, large Japanese banks will recognize this as the warning shot that it is. The Government will not allow a long recession of zombie companies - barely alive - to occur again.
The Japanese financial system is coming of age, and the “modern zaibatsu” (interconnected business-banking conglomerates), are no longer untouchable. The failure of a Japanese bank is a sign that the system has become more mature, confident, and responsible. Japan Inc. has been warned.
____
"Always strive to stay one step ahead. Standing still is retrogressive."
Nomura Tokuanden
____
