Japan’s Major Banks Are Safe, Officials Say : Asia: House banking chairman says emergency financial assistance will be provided if needed.

Japan’s banking crisis could reduce lending by Japanese banks in the United States and may further boost the value of the yen, but it does not threaten to topple that nation’s top banks, experts said Monday.

Rep. James Leach (R-Iowa), speaking at a hearing of the House Banking Committee he chairs, expressed concern about possible spillover effects from the crisis. He said federal regulators told him they are ready to provide emergency financial assistance if necessary to Japanese banks operating in the United States.

He did not elaborate on what form such a commitment would take, describing the assistance only as “emergency liquidity,” which typically means short-term loans to help banks manage financial problems.

Leach, who met separately with senior Treasury and Federal Reserve Board officials, said that “the government does not expect an unmanageable situation to arise” with Japan’s banks.

In addition, Leach said that in light of the cover-up of Daiwa Bank’s $1.1 billion in U.S. trading losses, more comprehensive examinations may be needed for foreign banks operating in the United States.

Daiwa disclosed last month that its New York branch suffered the losses in bond trading, but its executives and Japanese regulators did not promptly disclose the problem to U.S. authorities.

“It is impossible not to register deep concern over this brief but significant financial cover-up,” Leach said. “It is extraordinary that the Daiwa problem was missed for more than a decade of standard Federal Reserve exams.”

Leach called the hearing to learn what effects the Japanese financial crisis will have on the U.S. economy and the increasingly intertwined global economy.

Japanese banks accounted for 17% of total lending to U.S. commercial and industrial borrowers in August. Japan’s banks hold about 4% of U.S. Treasury bonds, the Fed says.

Deputy Treasury Secretary Lawrence Summers, in a speech before the Japan Society in New York, voiced support for Japan’s handling of the crisis. “I think the Japanese authorities in recent months [have shown] they are determined to do what is necessary to preserve stability,” Summers said. “The seriousness of these problems points up the importance of disclosure” in keeping a financial system functioning well.

Japan’s banks are suffering severely because of a rapid decline in that nation’s real estate market and a broad drop in the Tokyo stock market, which has lost a third of its value since 1990. Recently, small housing loan corporations, known as jusen , have gone bankrupt because of declining real estate prices.

The committee heard from six financial experts who agreed that the banking problem does not threaten to topple Japan’s large banks.

“Our conclusion here is that failure of some smaller financial institutions in Japan will not spread to the major institutions nor will it lead to a collapse of the Japanese financial system,” said Hiroshi Ueki, chief representative of the Nikko Research Center, a Washington-based think tank.

Japan’s Ministry of Finance said problem loans at Japan’s banks total $400 billion, or about 5.8% of total lending. That is similar to the severity of the most recent U.S. banking crisis, when U.S. banks were burdened with 5.1% of troubled loans at the end of 1991, Ueki said.

However, outside experts have estimated that Japan’s problem loans could be twice as great as the government has claimed.

Alicia Ogawa, director of equity research at Salomon Bros. Asia Ltd., told the committee that “in spite of the best intentions of the Ministry of Finance and the Bank of Japan, resolution of the problem will likely prove far more difficult and far more time consuming than the majority of foreign observers expect.”

Ueki said that as Japan’s banks move to write off bad loans, their U.S. lending activities could decline, but “U.S. and European banks can easily take up the slack.”

Robert Aliber, a professor at the University of Chicago, predicted the resolution of Japan’s financial problems will increase interest rates on that country’s bonds, and could lead to an outflow of investment from the U.S. market into Japan’s bonds and other financial assets.