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Failure and Insolvency: Lending and Decision-taking


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Failure and Insolvency: Lending and Decision-taking

Japan 1995   {1}


The Bank of Japan reported in February 1995 that two credit unions had lent 65 billion yen (GBP 430 million) to companies connected with a property developer which was headed by a former head of one of the credit unions and adviser to the other. They had unrecoverable loans of 110 billion yen (GBP 730 million). {CRE 05}

A special institution, the Tokyo Kyodo Bank, was later set up by the government to take over and handle the operations of these two failed credit unions. {CRE 07}


In July 1995 thousands of depositors withdrew 63 billion yen (pounds 450 million) from Cosmo Credit Corporation (Cosmo Shinyo Kumiai), the country's fourth-biggest credit union. Depositors were afraid that Cosmo would be overwhelmed by bad debts, put by one newspaper at 180 billion yen (GBP 1,290 million). By the end of the day the credit union had lost about 14 per cent of its deposits. {CRE 06}

'Employees at Cosmo's 24 branches frantically emptied vanloads of cash, piled it high on carts and rushed these to waiting tellers but neither this, nor promises by the financial authorities to lend Cosmo 40 billion yen, was enough to stem the panic.' {CRE 06}

The Tokyo government ordered Cosmo to stop all business. Cosmo had lent heavily to property speculators and collapsed with debts of GBP 1.6 billion. Japanese regulators then dissolved Cosmo and insisted that taxpayers must meet some of the cost.

Cosmo's operations were to be taken up by Tokyo Kyodo Bank. Since Cosmo will be handing over far more debts than assets, Tokyo Kyodo will need heavy infusions of cash: GBP 650 million from the Deposit Insurance Corp, an institution set up to protect investors; and GBP 140 million from the Bank of Japan, the central bank. {CRE 07}


In August 1995 depositors with Kizu Shinyo Kumiai, the biggest of Japan's 400 credit unions, rushed to withdraw their savings from the credit union which had irrecoverable loans of 600 billion yen (GBP 4 billion). Japan's authorities told the credit union to suspend its activities and repeated pledges that depositors would be protected. {CRE 08}


Reserves are being accumulated, apparently to enable credit unions to meet day-to-day demands without running out of funds, and for expansion. Being accumulated in a way which places them under the control of the credit union's officials.

What comes across forcefully is the large size of the bad debts of the failed credit unions and what appears to be the commitment of massive credit union funds to a few commercial enterprises on what may be a basis of who knows whom rather than the commercial viability of the borrowing enterprise and its plans.

See the report
Credit Unions
by Manfred Davidmann

{CRE 05}   Tokyo party official quits
Kevin Rafferty
Guardian, 15/02/95

{CRE 06}   Run on credit union sends ripple of fear through Japanese banks
Kevin Rafferty
Guardian, 01/08/95

{CRE 07}   Japanese taxpayer asked to help save failed credit union
Financial Staff
Guardian, 29/08/95

{CRE 08}   Depositors panic in Osaka
Kevin Rafferty
Guardian, 31/08/95

{1}  Credit Unions
Manfred Davidmann  {1996}

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Short Descriptions

Title   Description
Credit Unions   This study describes what credit unions are and what they can, and cannot, do. It also looks at some which failed.

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Manfred Davidmann

Manfred Davidmann is an internationally well-known and respected scientist and author of a number of books and reports which have had and are having considerable impact. His work usually breaks new ground and opens up new understanding and is written in meaningful and easily understood language. Outstanding is that his work is generally accepted as factual, objective and unbiased.

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