Globalization and the specter of Barings also helped push Japan's banks into risk systems
Japan's enormous domestic banks are finally joining the rest of the world in using the sort of institutionalized risk management systems so commonplace in America's banks, in the process creating new markets for vendors of said systems. In the past few months, Infinity Financial Technology, Swiss Bank Corp., and a unit of Banker's Trust New York Corp. all announced deals in this area.
BT Financial Services Information Systems, for instance, recently said it developed a risk management system for Sumitomo Bank, Ltd., one of Japan's largest. And Infinity, which has its own sales force in Japan, recently cut a deal with Hitachi, Ltd., to install and service its risk management systems, says Till Guldimann, Infinity's vice chairman. Infinity has systems installed at four Tokyo banks, including Fuji Bank, which reported 1996 assets of 52 trillion yen (about $433 billion USD). "Hitachi will develop software which links existing applications to our applications, and modify our software to (client) specifications," says Guldimann. "A lot of the work is linking up legacy systems, including trading and back-office systems, to ours; to make it work, the data has to be translated and modified and cleaned."
The spur for all this activity, of course, was the deregulation last year, called the Big Bang, itself the inevitable, if tardy, result of Japan's slow-motion recovery from a depression brought on by that nation's disastrous domestic lending policies, especially domestic commercial real estate, during the bubble economy of the 1980s.
That regulatory restructuring, which among other things allowed Japan's domestic banks to become more active in derivatives trading, for example, more or less required them to implement the sort of controls that have become prominent, if everyday, features in those same banks' overseas operations.
The specter of the Barings collapse, thanks partly to a lack of such systems, doubtless also helped push Japan's banks through the risk management systems door; but so did the accelerating phenomenon of globalization, with its edict of financial transparency enforced by legions of currency traders.
Recent decrees from Basle's Bank of International Settlements, which replaced its rigid eight percent capital requirements with a more flexible standard, also help the spread, since they require detailed reporting of derivative positions that can only be provided by such systems.
Considering the Japanese banks' enthusiastic lending in Southeast Asia, now floundering in collapsing currencies and canceled mega-projects, such systems can' be switched on a moment too soon.