Japanese-owned banks face possible U.S. sanctions: Treasury official tells Japanese to remove deposit controls.

Japanese-owned banks face possible U.S. sanctions

Treasury official tells Japanese to remove deposit controls

Japanese-owned banks in California -- four of which rank among the state's top 10 -- could soon be hit with federal government sanctions unless the Japanese government deregulates its own banks, U.S. Treasury Undersecretary David C. Mulford warned during a recent trip to Tokyo.

Mulford told the Japanese Finance Ministry it must remove controls on all domestic bank deposit rates within a year. If it fails to do so, the country will score bad marks on a market-access study the Treasury Department must submit to Congress by the end of the year.

The study, required under the 1988 Omnibus Trade Act, could give more clout to several pending Congressional proposals recommending retaliation against Japanese-owned banks operating in the United States.

"People who live in glass houses should not throw rocks," said Leonard Weil, retired president of Mitsui Manufacturers Bank, of Mulford's threats. The United States has still not completely deregulated U.S. financial institutions, explained Weil, because U.S. banks can not underwrite insurance policies and security offerings or invest in real estate.

As a consequence of government action foreign banks operating in the United States do not have as many rights here as they do in their own countries.

Weil pointed out the Japenese have made changes including removing tax exemptions on savings and stimulating consumer purchases. And, he noted, there is a good reason why the Japanese can loan money at a low interest rate: Japanese citizens are thrifty and banks have a "terrific supply of savings."

In addition, Weil said U.S. consumers benefit from the low Japanese interest rates because they can purchase Japanese goods at low cost. Japan also purchases a large percentage of the U.S. budget deficit, he added.

It may also be unfair to retaliate against Japanese-owned banks in the United States because they receive a small percentage of their funding from their parent banks. Gary Zimmerman, an economist with the Federal Reserve Bank in San Francisco, found that Japanese-owned banks in the United States only receive 5 percent of their funding from the parent bank.

The United States has been pressuring the Japanese for the last six years to remove their banking regulations. Japan claims it has made several changes, but Mulford charged there has not been enough progress. He complained that the low interest rate that Japanese banks give their depositors allows them to loan money at lower rates than their U.S. and international counterparts.

At the talks in Tokyo, Japanese officials did agree to grant specialized banking licenses to foreign security companies operating in Japan. The licenses will permit them to handle foreign-exchange transactions. Japan will also allow Japanese investors to use Globex, an automated futures and options trading system that will be used on Chicago's main exchanges.

Mulford said that the Finance Ministry has not removed a tax on Treasury bills, or permitted individual investors to purchase them. He also said foreign investment trusts have a tough time entering Japan's market.