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 PA LG R AV E M AC M I L L A N S T U D I E S I N
BANKING AND FINANCIAL INSTITUTIONS
S E R I E S E D I TO R : P H I L I P M O LY N E U X

Financial Crisis and Bank

Management in Japan
(1997 to 2016)
Building a Stable Banking System

Mitsuhiko Nakano
Palgrave Macmillan Studies in Banking
and Financial Institutions
Series Editor
Philip Molyneux
Bangor University
Bangor, United Kingdom
The Palgrave Macmillan Studies in Banking and Financial Institutions series
is international in orientation and includes studies of banking systems
in particular countries or regions as well as contemporary themes such
as Islamic Banking, Financial Exclusion, Mergers and Acquisitions, Risk
Management, and IT in Banking. The books focus on research and prac-
tice and include up to date and innovative studies that cover issues which
impact banking systems globally.

More information about this series at

http://www.springer.com/series/14678
 Mitsuhiko Nakano

Financial Crisis and

Bank Management
in Japan (1997 to
2016)
Building a Stable Banking System
Mitsuhiko Nakano
Momoyama Gakuin University
(St. Andrew’s University)
Osaka, Japan

Palgrave Macmillan Studies in Banking and Financial Institutions

ISBN 978-1-137-54117-8 ISBN 978-1-137-54118-5 (eBook)
DOI 10.1057/978-1-137-54118-5

Library of Congress Control Number: 2016946992

© The Editor(s) (if applicable) and The Author(s) 2016

The author(s) has/have asserted their right(s) to be identified as the author(s) of this work in accordance
with the Copyright, Designs and Patents Act 1988.
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether
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The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
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protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this book
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Printed on acid-free paper

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The registered company is Macmillan Publishers Ltd.
The registered company address is: The Campus, 4 Crinan Street, London, N1 9XW, United Kingdom
Dedicated to my mother and the memory of my late father.
Mitsuhiko Nakano
“Mitsuhiko Nakano lucidly illustrates what happened in the Japanese
banking market after the financial crisis around 2000 and how Japanese
banks were stripped of both their autonomy and vitality under a regime
of tougher banking regulation. Japan’s case also teaches us an important
lesson: monetary easing policy has limitations as a tool in rescuing banks.”

Dr. Antonio Trujillo-Ponce

Director of the Banking and Entrepeneurial
Finance Research Group (BANEF)
Universidad Pablo de Olavide, Spain
 Preface

Everybody in the Japanese banking industry in the 1980s believed that

‘A gate to a new dream world is set to open.’ Events were to prove that it
was actually a gate to repeated crises and a long, painful and difficult road
for Japanese financiers and policy-makers. The purpose of this book is to
illustrate the struggles of the Japanese economy and to present its effects
on the Japanese banking industry during the past 20 years.
The Japanese financial crisis of the late 1990s brought comprehensive
restructuring to the banking industry and progressed in tandem with
big changes in the economic system and eventually led to the long-term
deflation of the 2000s. The Bank of Japan struggled to halt deflation by
launching a zero-interest-rate policy and a quantitative monetary easing
policy in the early 2000s. Among the advanced economies, Japan became
the first country to step into the realm of unconventional monetary pol-
icy. At the same time, the government started to reduce fiscal spend-
ing because the outstanding balance of government debt had already
become large as a result of successive emergency fiscal plans that had
been launched during the financial crisis. No room was left for additional
spending. In that sense, an escape from deflation was singularly and heav-
ily dependent on monetary policy.
However, deflation did not cease in spite of the monetary easing policy.
The deflation economy severely affected banking businesses. The priority
of large banks at this time was the settlement of non-performing loans
vii
viii Preface

that had accumulated during the bubble economy, and progress made in
settlement seriously eroded their net wealth. In addition, the banks hesi-
tated to accept additional risks under the strict regulation policy of the
financial authority. Consequently, banks shifted their funds from lending
to investment in Japanese government bonds.
During its early stages, the monetary easing policy helped banks
boost their profits as declining deposit interest rates expanded margins.
However, in its later stages, the policy depressed banking profits through
the considerable decrease of lending yields. This effectively reduced the
ability of the banks to take risks when the international regulation of
capital–asset ratios became tighter than ever. Nevertheless, the economy
recovered gradually and bank lending increased slowly due to the effects
of long-term monetary easing. The Bank of Japan then turned to the
normalization of its monetary policy, although concerns of deflation
persisted.
Just as some tangible improvements were becoming apparent in the
late 2000s, the two disasters of the Lehman Shock in 2008 and the Great
East Japan Earthquake in 2011 buffeted the national economy, sending
the Japanese economy back into deflation. Although direct losses of the
Japanese financial institutions were small, the real economy was severely
impacted by the slowdown in the global economy resulting from the
Lehman Shock. Suddenly, the banks were forced to return to a defensive
stance of behaviour. In addition, the Great East Japan Earthquake further
worsened the psychological mood of Japanese people. Japan was hit three
times by shocking incidents within a span of about 20 years, even though
each incident might be expected to occur no more than once every 100
years. The government and the Bank of Japan implemented every con-
tingency measure to sustain the economy. Particularly, the Bank of Japan
committed further into the comprehensive monetary easing policy, which
included qualitative monetary easing policy. However, the deflationary
economy unfortunately never gave way to a positive outcome.
Abenomics appeared suddenly in 2013 as a policy package comprised
of three arrows or directives aimed at breaking the prevailing deflationary
mindset of the public. The Bank of Japan described the inflation target
clearly and launched quantitative and qualitative easing monetary poli-
cies with greater volume and wider scope than in the past. Stock prices
 Preface ix

rose sharply. The Japanese yen fell as expected. However the inflation tar-
get was not achieved even within three years, in fact exceeding the prom-
ised two years. In addition, the portfolio rebalancing of the banks by
shifting funds from government bonds to lending was not realized either.
Moreover, the new monetary policy worsened bank profits further by
bringing about a greater decrease in lending yields. Eventually, monetary
policy entered the unexplored realm of negative interest rates in response
to the global economic downturn. As a result, banks were compelled to
rebalance their portfolios to assume some risk.
Eventually, Japanese society and economy are expected to encounter
the critical situation of extremely rapid demographic change the likes
of which no other nation has experienced in modern history with the
exception of times of war. The Japanese banking industry will be the first
to cope with this issue. The possibility exists of an expansion of financial
businesses that goes beyond the banking industry. The development of
financial technology will promote that possibility.
In Chap. 1, the processes of the Japanese financial crisis and the bank-
ing crisis are surveyed, including some important shocks that strongly
impacted the management of Japanese banks. In Chap. 2, attendant
changes in the social and economic systems are described, including the
legal and the accounting systems as related to banking business opera-
tions. In Chap. 3, deflation and its causes in the Japanese economy are
elucidated. Then the monetary policy of the Bank of Japan is traced, and
its effect on the banking business is evaluated. Chapter 4 presents an
explanation of Abenomics and its effects on banking businesses. Finally
in Chap. 5, a prognosis, to the greatest extent possible, of the future of
the banking industry in Japan is described, including the development of
other financial business operations.
It is hoped that this book will help readers gain a fuller and deeper
understanding of the Japanese economy and the Japanese banking indus-
try, including its future scope.
 Acknowledgements

In February 2014, I made my first visit to Cass Business School in

London. The surroundings of the school had been completely modern-
ized. They differed greatly from those I remembered at the time I had
studied in London many years ago.
I was given a one-year sabbatical leave by St. Andrew’s University
(Momoyama Gakuin University) and was blessed with a wonder-
ful opportunity to undertake research at Cass Business School of City
University London from September 2014. My supervisor, Dr. Barbara
Casu Lukac, the Director of the Centre for Banking Research at Cass
Business School, kindly advised me to write a book about the Japanese
banking industry and the Japanese economy. Few books have described
the Japanese banking business. Most of those have merely referred to the
financial crisis of the early 2000s.
I used to condemn non-performing loans during the financial crisis in
Japan. Since then I had written a few articles regarding the Japanese bank-
ing industry and banking business based on my experience and research.
This time I reviewed all of them, re-considered the meaning of the long-
term deflationary economy in Japan, analysed the revitalization process
of the Japanese banking industry, and explored the future of the industry.
I would like to thank Dr. Barbara Casu Lukac sincerely for her proposal.
I also appreciate the encouragement of my colleagues at Cass Business
School. I acknowledge the support both of St. Andrew’s University
xi
xii Acknowledgements

(Momoyama Gakuin University) and of Cass Business School. I also

appreciate useful advice from my colleague, Dr. Junsuke Matsuo and
Professor Zafar Moghbel, and the editorial suggestions of Ms. Alexandra
Morton of Palgrave Macmillan. Finally I should like to thank my wife
Rie, who has tenderly supported me on every occasion.
 Contents

1 Financial Crisis and Banking Crisis in Japan: 1997–2003 1

1.1 Introduction 1
1.2 Outline of the Banking Structure in Japan 2
1.3 The Bubble Economy and Its Collapse 4
1.3.1 The Three Causes of the Bubble Economy 4
1.3.2 Bank Behaviour 8
1.3.3 Collapse of the Bubble Economy 12
1.4 Financial Crisis 13
1.4.1 The Shinkumi Crisis 13
1.4.2 The Jusen Crisis 16
1.4.3 Successive Collapses During Bloody November 18
1.4.4 Collapse of the Two Long-Term Credit Banks 20
1.5 Restructuring of City Banks 22
1.5.1 Injections of Public Funds Three Times 22
1.5.2 The Shinsei Shock 23
1.5.3 Births of Megabank Groups 24
1.5.4 The Zenecon Crisis 24
1.5.5 The Resona Shock 25
1.5.6 The UFJ Crisis 27
1.6 Conclusion 28
References 32

xiii
xiv Contents

2 Change in Banking Supervision Policy and

Their Effects on Bank Behaviour: 2002–05 33
2.1 Introduction 33
2.2 Change of Banking Supervision Policy 33
2.2.1 Change of Banking Supervision Authority 33
2.2.2 The Financial Big Bang in Japan 36
2.2.3 Programme for Financial Revival 38
2.3 Bank Behaviour and Loss of Autonomy 41
2.3.1 Dissolution of the Mutual Shareholding System 41
2.3.2 Disposal of NPLs 42
2.3.3 Collection of NPLs 45
2.3.4 Revitalization of Failed Firms 46
2.3.5 The Second of the Basel Accords 47
2.3.6 Change of Bank Behaviour and Loss
of Autonomy 48
2.4 Structural Reforms in Economic and Social
Systems in Japan 53
2.4.1 Excessive Surpluses in the Three Economic
Elements 53
2.4.2 Backbone Design for Economic System Reforms 54
2.4.3 Acts of Insolvency and the Accounting System 57
2.4.4 Employment System 59
2.5 Conclusion 62
2.5.1 [Column] The Issue of the 30 Failed Firms 64
2.5.2 [Column] The Saiken Hoki Method 64
References 66

3 The Lehman Shock and Its Influence

on Banking Supervision Policy: 2008–13 67
3.1 Introduction 67
3.2 Deflation in the 2000s 68
3.2.1 Definition of Deflation 68
3.2.2 Trend of Deflation 68
3.2.3 Dispute of Aggregated Prices 71
3.2.4 Wage Deflation 72
 Contents xv

3.3 Monetary Policy of the BOJ 76

3.3.1 Monetary Policy After the Collapse of the Bubble
Economy 76
3.3.2 Effects of the BOJ Policy 83
3.4 The Lehman Shock and the Great East Japan Earthquake 88
3.4.1 The Lehman Shock 88
3.4.2 The Great East Japan Earthquake 94
3.5 Portfolio of the Banks 96
3.5.1 Small Rebalance of an Asset Portfolio 96
3.5.2 Decline of Interest Margin 98
3.6 Conclusion 103
References 104

4 The Launch of Abenomics and Its Effects

on the Banking Business 107
4.1 Introduction 107
4.2 Launch of Abenomics 108
4.2.1 Economic Situation of Pre-Abenomics 108
4.2.2 Three Arrows 110
4.2.3 Theoretical Background 116
4.2.4 Arguments 118
4.3 Effects of the New Monetary Policy 119
4.3.1 Financial Markets 119
4.3.2 The Second Bazooka 121
4.3.3 Banking Business 123
4.4 Three-Year Results of Abenomics 129
4.4.1 Macro Economy 129
4.4.2 Defects of Abenomics 133
4.4.3 QQE with a Negative Interest Rate 135
4.5 Conclusion 138
4.5.1 [Column] Political Background of
Prime Minister Abe 139
References 140
xvi Contents

5 The Future of Banking Management in Japan 141

5.1 Introduction 141
5.2 Funds Flow and Its Future 142
5.2.1 Funds Flow 142
5.2.2 Outstanding Balance of Financial Assets 144
5.3 Structural Issues of the Japanese Economy 146
5.3.1 Population Decline 146
5.3.2 Deterioration of the Local and
Peripheral Economies 149
5.4 Development of the Financial Industry 152
5.4.1 Capital Markets 152
5.4.2 Shadow Banking System 154
5.4.3 Retail Financial Business 155
5.4.4 Crowdfunding 157
5.5 The Japanese Banking Business of the Future 159
5.5.1 Banking Business in the Future 159
5.5.2 Megabanks 160
5.5.3 Regional Banks 167
5.5.4 Small Financial Institutions 170
5.6 Conclusion 171
References 175

6 Conclusion 177

Index 181
 Frequently Used Abbreviations

BOJ The Bank of Japan

BTMU The Bank of Tokyo-Mitsubishi UFJ, Ltd.
CGCs Credit Guarantee Companies
Chogin Nippon Choki Shin’yo Ginko (The Long-Term Credit Bank of
Japan, Limited)
CY Calendar Year
DBJ Development Bank of Japan Inc.
DIC Deposit Insurance Corporation of Japan
FSA Financial Service Agency
FSB Financial Stability Board
FY Fiscal Year: from April to March in the next calendar year
GHQ General Headquarters, the Supreme Commander for the Allied
Powers
IMF International Monetary Fund
IRC Industrial Revitalization Corporation of Japan
JBA Japanese Bankers Association
JBIC Japan Bank for International Cooperation
JFC Japan Finance Corporation
LDP Liberal Democratic Party
MHBK Mizuho Bank, Ltd.
MHFG Mizuho Financial Group, Inc.
MOF Ministry of Finance
MOHLW Ministry of Health, Labour and Welfare

xvii
xviii Frequently Used Abbreviations

MUFG Mitsubishi UFJ Financial Group, Inc.

MUTB Mitsubishi UFJ Trust and Banking Corporation
Nissaigin Nippon Saiken Shin’yo Ginko (The Nippon Credit Bank,
Limited.)
QE Quantitative Monetary Easing Policy
QQE Quantitative and Qualitative Monetary Easing Policy
RCC Resolution and Collection Corporation
RWA Risk Weighted Asset
SMBC Sumitomo Mitsui Banking Corporation
SMEs Small and Medium-sized Enterprises
SMFG Sumitomo Mitsui Financial Group
UFJB UFJ Bank Limited
UFJHD UFJ Holdings, Inc.
ZIRP Zero Interest Rate Policy
 List of Figures

Fig. 1.1 Trends in urban land price index 5

Fig. 1.2 Japanese yen to US dollar exchange rate: 1973–95 6
Fig. 1.3 Trend in the overnight call rate 7
Fig. 1.4 Trends in stock price and trading volume 13
Fig. 2.1 Disposal of the NPLs 43
Fig. 2.2 Trends in outstanding balance of corporate lending of all banks 49
Fig. 2.3 Trends in diffusion index of business conditions by size of firm 50
Fig. 3.1 Trends in CPI and GDP deflatorx 69
Fig. 3.2 Aggregate average of salaries in private business entities 73
Fig. 3.3 GDP growth rate trend 81
Fig. 3.4 Trend of money stock (M2) and nominal GDP 85
Fig. 3.5 Outstanding balance of bank lending by month 88
Fig. 3.6 Changes of balance sheet items of all banks 97
Fig. 3.7 Trend of lending yields 99
Fig. 3.8 Trend of margins 100
Fig. 3.9 Business performance of Toyota Motor Corporation 100
Fig. 4.1 Trends of unemployment rate by month 109
Fig. 4.2 Trends of the yen–dollar exchange rate and the
Nikkei Stock Average 109
Fig. 4.3 Roles of the three policy measures in Abenomics 117
Fig. 4.4 Yields of newly issued 10-year JGBs 120
Fig. 4.5 Trends in monthly percentage change of CPI less fresh food 130
Fig. 4.6 Trends of dividend payments 131

xix
xx List of Figures

Fig. 4.7 Trends of labour shares of national income 133

Fig. 5.1 Trends of current account of international trade balance 143
Fig. 5.2 Trends of net saving status by economic sector 144
Fig. 5.3 Trends in regional GDP in real terms 150
Fig. 5.4 Trends of shadow banking in Japan 155
Fig. 5.5 Business diagram of the Japanese banks in the future 159
 List of Tables

Table 1.1 Outline of the Japanese banking industry (trillion yen) 2

Table 1.2 Financial investment activities of business entities
in the bubble economy 11
Table 1.3 Brief history of the financial crisis in Japan 14
Table 2.1 Core contents of the Financial Big Bang in Japan
and dates of implementation 37
Table 2.2 Basic policies of the ‘programme for the financial revival’ 39
Table 2.3 Business performance of Sumitomo Mitsui
Banking Corporation (trillion yen) 45
Table 2.4 Evaluation of relationship banking by SMEs 52
Table 2.5 Financial services that SMEs and financial institutions
consider important 52
Table 2.6 Changes of employees in the banking industry
(end of March, thousand people) 55
Table 3.1 Price changes of consumer goods by product
(Index: year of CY2010 = 100, %) 70
Table 3.2 Changes of salaries by number of employees
(thousand yen, %) 74
Table 3.3 Monetary operations of the BOJ: 1995–2007 77
Table 3.4 Outstanding balance of base money and money
stock on average (end of April, trillion yen) 86
Table 3.5 Emergency operations in financial markets at the
time of the Lehman Shock 90

xxi
xxii List of Tables

Table 3.6 Monetary operations of the BOJ: 2008–2011 90

Table 3.7 Emergency financial support to private firms after
the Lehman Shock 91
Table 3.8 Examples of ‘Fund-Provision Measures to
Support Strengthening of Foundations for Economic
Growth’ (billion yen) 92
Table 3.9 Profit and loss accounts of all banks (trillion yen) 101
Table 4.1 Quantitative and qualitative easing policy by the BOJ 111
Table 4.2 Outstanding balance of JGBs and reserves of banks
(at the end of March, trillion yen) 123
Table 4.3 Yield of all banks, the city banks and the regional banks (%) 125
Table 4.4 Profit and loss accounts of the city banks (billion yen) 126
Table 4.5 Outstanding balance of overseas lending of the
three megabank groups (end of March, trillion yen, %) 127
Table 5.1 Outstanding balance of financial assets and liabilities
by economic sector (end of March 2015, trillion yen) 145
Table 5.2 Changes of deposits and lending-to-deposit ratios
(end of March, trillion yen, %) 151
Table 5.3 Net profit structure of MUFG and SMFG (billion yen) 161
Table 5.4 Recent acquisitions of overseas businesses by the
megabank groups 163
Table 5.5 Consolidated positions on counterparties by Group
of Five as a reporting country (end of September
2015, billion US dollars, %) 165
Table 5.6 Capital ratios of megabank groups (end of March, %) 165
Table 5.7 Recent business and management integrations
of regional banks 168
Table 5.8 Cross−border claims in selected Asian nations by
Group of Five as a reporting country (amount
outstanding, billions US dollars) 174
 1
Financial Crisis and Banking Crisis
in Japan: 1997–2003

1.1 Introduction
The banking crisis from the late 1990s in Japan remains the most memo-
rable incident in Japanese financial history. It was commensurate with the
Showa Kin’yu Kyoko, the Showa financial crisis in the 1930s, following the
global Great Depression that began in 1929. The banking crisis led to a
restructuring of the banking industry, which had not changed for 50 years
after World War II. In this chapter, first the banking crisis that occurred
mainly during 2000–04 is specifically examined. Secondly, causes, bank
behaviours, political reactions including monetary policy, and the results
are reviewed. In this book, the financial crisis is defined as a financial
turmoil that includes all financial institutions from the early 1990s to
the mid-2000s. The banking crisis is defined particularly as bank failures
during 1998–2004. In that sense, the banking crisis is included in the
financial crisis in terms of both substance and period.

© The Author(s) 2016 1

M. Nakano, Financial Crisis and Bank Management in Japan (1997 to
2016), DOI 10.1057/978-1-137-54118-5_1
2 Financial Crisis and Bank Management in Japan (1997 to 2016)

1.2 Outline of the Banking Structure in Japan

The banking structure in Japan is a hierarchical one similar to those in
other nations. It was established during the Meiji period (1868–1912).
The banks in Japan are classified fundamentally by their origin and busi-
ness area. The city banks are in the top tier. The regional banks are in
the second one. The second regional banks are in the third tier. Finally,
the cooperative financial institutions are in the fourth tier. Their num-
bers and the deposits controlled by organizations of each classification are
presented in Table 1.1. In the late 1980s city banks numbered 13, reduc-
ing to 11 by April 1996 because of mergers. These have agglomerated
into five in the four financial groups after the restructuring that occurred
at the beginning of the 2000s. The regional banks numbered 64 in the
1980s, the same as in 2015. The second regional banks1 numbered 68 in
the late 1980s; there were 41 in 2015. The cooperative financial insti-
tutions mainly consist of entities in four categories: the Shin’yo Kinko

Table 1.1 Outline of the Japanese banking industry (trillion yen)

Mar. 1991a Mar. 2015
Category Numberb Deposit Numberb Deposit
Domestic banking account 147 513.9 110 717.1
City banks 12 227.7 5 327.0
Regional banks 64 155.0 64 252.9
Second regional banks 68 59.0 41 64.8
Long-term credit banks 3 55.9 0 0
Shinkin 451 82.6 267 132.0
Shinkumi 407 22.4 154 19.2
Norinchukin banks 1 25.2 1 56.8
Agricultural cooperatives 3574 56.1 679 93.7
Japan Post Bank 1 136.2 1 177.2
Source: Japanese Bankers Association Kin’yu
Note:
a
FY1990 ended in March 1991 was the peak year of the bubble economy in
Japan
b
The number of each financial institution

1
The second regional banks used to be classified as the Sogo Bank, a regionally cooperative financial
institution. They were legitimated to be converted to an ordinary bank in 1989 onwards. But they
are still classified separately from the regional banks because of their origin.
 1 Financial Crisis and Banking Crisis in Japan: 1997–2003 3

(Shinkin), the Shin’yo Kumiai (Shinkumi),2 the Rodo Kinko (Rokin),3 and
the Nogyo Kyodo Kumiai (Nokyo),4 and others. The cooperative financial
institutions have been aggregated since the early half of the 1990s.5
In addition to the private financial institutions, a few financial institu-
tions exist under the control of the government. Japan Post Bank Co. Ltd.
(Japan Post Bank) which used to be part of the public agency, the Japan
Post, is undergoing privatization. Japan Finance Corporation (JFC) is
an institution wholly owned by the government and providing financial
support to small and medium-sized enterprises (SMEs) and individuals.
Development Bank of Japan Inc. (DBJ) is in charge of supporting indus-
tries financially based on the industrial policies of the government. Japan
Bank for International Cooperation (JBIC) is responsible for supporting
government policies in terms of internationally financial support, mainly
to enterprises.
In terms of the deposit amount, it is readily apparent that the city
banks are much larger than regional banks. For example, the deposit size
of the city banks, on average at present is 20 times that of the regional
banks. The average size of Shinkin is much smaller than that of the
regional banks, reflecting their inherent histories.
Business functions of the financial institutions have been similar in
terms of financial intermediaries, but the sizes of clients and scope of
operations in addition to business areas have differed depending on
their place in the financial hierarchy. The three megabanks have some
background as a financial centre of a particular business concern such
as the Mitsui Group, the Mitsubishi Group, the Sumitomo Group, and
the Fuyo Group.6 The business areas of the megabanks extend not only

2
Shinkin, Shinkumi, and other cooperative financial institutions are not included in banks legally
but are included in banks in terms of banking business.
3
Rodo Kinko is a cooperative financial institution specifically for employees. There are 13 institu-
tions in regional districts.
4
Nogyo Kyodo Kumiai is a cooperative institution specifically for farmers. There are more than 2000
all over Japan.
5
The number of Shinkin decreased by nearly 180 from about 450 to around 270 mainly because
of mergers during the financial crisis. However the number of Shinkumi decreased dramatically
mainly because of resolutions noted in Sect. 1.3.1.
6
These business groups had grown in the Meiji Era after 1868 and formed Zaibatsu, a big business
concern, under a respective holding company until the end of World War II. They were resolved by
4 Financial Crisis and Bank Management in Japan (1997 to 2016)

throughout Japan but also all over the world. Their clients vary from
individuals to large listed firms including transnational firms. However,
the regional banks and the cooperative financial institutions originated as
local financial institutions operating in one particular district. Therefore
their clients are fundamentally limited to individuals and business enti-
ties in each district.

1.3 The Bubble Economy and Its Collapse

1.3.1 The Three Causes of the Bubble Economy

The Japanese economy was highly boosted and rapidly growing in the late
1980s. It was known as ‘the bubble economy’. The causes had originated
in the 1970s during the two oil shocks. In the 1970s, demands for fixed
investment of private firms in Japan decreased markedly and the annual
Gross Domestic Product (GDP) growth rate in real terms declined from
about 10 per cent in the 1960s and the early 1970s to less than half that.
Then large firms had surplus funds for undefined uses. However, the gov-
ernment adopted an expansionary fiscal policy to inspire the economy.
The bond market became larger and larger through large issues of Japanese
Government Bonds (JGBs). As a result, high demand for financial invest-
ments was amplified. The result resembled the disintermediation phenom-
enon prevailing in the US financial market in the early 1970s.
The US government under the presidency of Ronald Reagan strongly
requested in the early 1980s that Japanese financial markets be deregu-
lated and opened up to foreign financial institutions and investors. Under
these circumstances, multinational firms and other large firms switched
their funding sources from commercial banks to capital markets. As a
result, the large banks rushed to expand mortgage loans responding to
the sharp rise in real estate prices. The movement of land prices in Japan
is shown in Fig. 1.1. Banks were trying to win a competition under

General Headquarters, the Supreme Commander for the Allied Powers (GHQ), from 1945 to
1952. But they were reorganized around the year 1960 to be a business combination group with
the same origin.
 1 Financial Crisis and Banking Crisis in Japan: 1997–2003 5

600

500
(end of Mar. 2000=100)
400

300

200

100

0
1984 1988 1992 1996 2000 2004
for commercial for residential for all uses

Fig. 1.1 Trends in urban land price index. Note: Figures are based on ‘six
large city areas’ (Source: Japan Real Estate Institute ‘urban land price index’)

inexperienced financial deregulation. The financial authority itself

inspired them to take risks and mutually compete.
So many discussions have taken place about the causes of the Japanese
bubble economy of the late 1980s. The situation can be summarized as
follows, in comparison with the Subprime Loan Crisis in the USA and
the banking crisis in Europe. The first cause was government economic
policy. The Japanese government needed to inspire the domestic econ-
omy to increase imports because the trade surplus against the USA had
become an important political issue in both countries. The G5 countries
had already agreed to an alignment of the foreign exchange rates against
the US dollar at the Plaza Hotel in September 1985: the so-called Plaza
Accord. The Japanese government intervened in the foreign exchange
market by selling the dollar in the market. The Japanese yen to US dol-
lar exchange rate increased by 34.1 per cent from 237.10 yen at the end
of August 1985 to 156.05 yen at the end of August 1986, as shown in
Fig. 1.2. According to this appreciation, the purchasing power of the
Japanese yen had been greatly increased.7 To prevent the further rise of
the yen, the government intervened in the foreign exchange market by

7
Nishimura (1999, pp. 50–56) stated that the impact of the yen’s appreciation after the Plaza
Accord on Japan was so huge and it bubbled the Japanese economy.
6 Financial Crisis and Bank Management in Japan (1997 to 2016)

(yen)
0

50

100

150

200

250

300

350
1973 1977 1981 1985 1989 1993

Fig. 1.2 Japanese yen to US dollar exchange rate: 1973–95. Note: Figures are
based on a monthly average (Source: The Bank of Japan)

buying a huge amount of US dollars by selling Japanese yen. However,

the Bank of Japan (BOJ), the central bank of Japan, did not adopt a
sterilization policy. As a result, a huge amount of yen remained in the
money market. The liquidity held by the banks increased considerably
and led to the funding of speculative investments. However, the govern-
ment tax revenues increased along with asset inflation in terms of a fixed
property tax and a tax on income from real estate transfers. This func-
tioned as an incentive for the government to continue with the existing
conditions.
The second cause was the easing of monetary policy adopted by the
BOJ. It decreased the Official Discount Rate (ODR) in February 1987 to
2.50 per cent, which was the lowest record in monetary policy history after
World War II. Accordingly the overnight call rate declined from around
eight per cent to around three per cent sharply in 1987 (Fig. 1.3). Before
the decrease of the rate there had been an overflow of money in financial
markets, as noted above. The BOJ had not adopted a sterilization policy
to absorb the money. The first priority for the BOJ was the recovery of the
domestic economy, which had been damaged severely by the appreciation of
the yen in 1985. A low interest rate for lending with the overflowed money
set a sufficient condition for the bubble economy with asset inflation.
 1 Financial Crisis and Banking Crisis in Japan: 1997–2003 7

(%)
14

12

10

0
1976 1980 1984 1988 1992 1996 2000 2004

Fig. 1.3 Trend in the overnight call rate. Note: Figures are at the end of each
month (Source: The Bank of Japan)

The third cause was the deregulation of financial markets by the

Ministry of Finance (MOF). The Japanese government was compelled to
deregulate the financial regime by strong pressure from the US Reagan
administration. Both the liberalization of deposit interest rates and the
openness of financial markets to foreign institutions were crucial points
of the deregulation policy. In the Yen Dollar Committee, the direction
of the Japanese financial industry was decided.8 The Japanese govern-
ment determined an implementation of the financial deregulation plan
which would start in the last half of the 1980s and end in the last half of
the 1990s. Then they urged city banks to improve management ability
through competition in a deregulated market. That strategy completely
overlapped the bubble economy period and the period of collapse. It was
readily apparent that the policy severely affected the behaviour of the
Japanese banks, which had been the main players in financial markets.
To these three causes, one particular external cause should be added.
The main objective of the US government, which forced the Japanese

8
Ohta (1991, pp. 79–81) described the details of discussions in the Committee. He illustrated the
attitude of the US representative in the Committee with a phrase ‘The Second Black Ship has
come’! The Black Ship was the US foreign delegation in the 1850s which forced the Japanese
Tokugawa jurisdiction of Samurai to open the nation.
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Haïtien. Here, however, their numbers availed them little against the
arms and discipline of the French troops, and they were driven back
with great slaughter, and many then retired to the mountains. It
would naturally be suspected that the coloured people were the
instigators of this movement, were it not certain that they were as
much opposed to the freedom of the blacks as the most impassioned
white planter.
The insurgent slaves called themselves “Les Gens du Roi,” declaring
that he was their friend, and was persecuted for their sake; they
hoisted the white flag, and placed an ignorant negro, Jean François,
at their head. The second in command was a Papaloi or priest of the
Vaudoux, named Biassou. He encouraged his followers to carry on
the rites of their African religion, and when under its wildest
influence, he dashed his bands to the attack of their civilised
enemies, to meet their death in Hayti, but to rise again free in their
beloved Africa. The ferocity of the negro nature had now full swing,
and the whites who fell into their hands felt its effects. Prisoners
were placed between planks and sawn in two, or were skinned alive
and slowly roasted, the girls violated and then murdered. Unhappily
some of these blacks had seen their companions thus tortured,
though probably in very exceptional cases. Descriptions of these
horrors fill pages in every Haytian history, but it is needless to dwell
on them. On either side there was but little mercy.
The Governor at length collected 3000 white troops, who, after
various skirmishes, dispersed these bands with much slaughter; but
as this success was not followed up, Jean François and Biassou
soon rallied their followers.
In the meantime the coloured men at Mirebalais, under the
leadership of Pinchinat, began to arouse their brethren; and having
freed nine hundred slaves, commenced forming the nucleus of an
army, that, under the leadership of a very intelligent mulatto named
Bauvais, gained some successes over the undisciplined forces in
Port-au-Prince, commanded by an Italian adventurer, Praloto. The
Royalists, who had been driven from the city by the mob, had
assembled at “La Croix des Bouquets” in the plains, and to
strengthen, their party entered into an alliance with the freedmen.
This alarmed the inhabitants of Port-au-Prince, and they also
recognised the existence of Pinchinat and his party by entering into a
regular treaty with them. The Haytians, as I may call the coloured
races, began now to understand that their position must depend on
their own courage and conduct.
When everything had been settled between the chiefs of the two
parties, the Haytians returned to Port-au-Prince, and were received
with every demonstration of joy; they then agreed to a plan which
showed how little they cared for the liberty of others, so that they
themselves obtained their rights. Among those who had fought
valiantly at their side were the freed slaves previously referred to.
For fear these men should incite ideas of liberty among those blacks
who were still working on the estates, the coloured officers
consented that they should be deported from the country. In the end
they were placed as prisoners on board a pontoon in Mole St.
Nicolas, and at night were for the most part butchered by unknown
assassins. And Bauvais and Pinchinat, the leaders and the most
intelligent of the freedmen, were those that agreed to this deportation
of their brethren-in-arms who had the misfortune to be lately slaves! I
doubt if the blacks ever forgot this incident.
The coloured men gained little by this breach of faith, as shortly after
news arrived that the French Assembly had reversed the decree of
May 15, which gave equal rights to the freedmen; and then
dissensions broke out, and the coloured men were again driven from
Port-au-Prince with heavy loss. This was the signal for disorders
throughout the whole country, and the whites and the freedmen were
skirmishing in every district. Praloto and the rabble reigned supreme
in Port-au-Prince, and soon made the rich merchants and
shopkeepers feel the effects of their internal divisions. They set fire
to the town, and during the confusion plundered the stores, and
exercised their private vengeance on their enemies.
The whole country was in the greatest disorder when the three
commissioners sent by the French Government arrived in Hayti. The
Colonial Assembly was still sitting at Cap Haïtien, and the insurgent
negroes were encamped at no great distance. They immediately
endeavoured to enter into negotiations with them, which had little
result, on account of the obstinacy of the planters. The three
commissioners were Mirbeck, St. Leger, and Roume. Finding that
their influence was as nought, the former two returned to France,
whilst Roume went ultimately to Santo Domingo.
The state of the colony may be imagined when it is remembered that
the whites were divided into three distinct sections. The coloured
men, jealous of each other, did not combine, but were ready to come
to blows on the least pretext; while the blacks, under Jean François,
were massacring every white that fell into their hands, and selling to
the Spaniard every negro or coloured man accused of siding with the
French. The planters wanted independence or subjection to
England; the poorer whites anything which would give them the
property of others; the coloured were still faithful to France; whilst the
blacks cared only to be free from work; yet among them was
Toussaint, who already had fermenting in his brain the project of a
free black State.
It would interest few to enter into the details of this history of horrors,
where it is difficult to feel sympathy for any party. They were alike
steeped in blood, and ready to commit any crime to further their
ends. Murder, torture, violation, pillage, bad faith, and treachery meet
you on all sides; and although a few names arise occasionally in
whom you feel a momentary interest, they are sure soon to disgust
you by their utter incapacity or besotted personal ambition.
The National Assembly in Paris, finding that their first commissioners
had accomplished nothing, sent three others, two of whom,
Sonthonax and Polvérel, are well known in Haytian history. They had
full powers, and even secret instructions, to do all they could to give
freedom to the slaves.
These two commissioners were of the very worst kind of
revolutionists, talked of little but guillotining the aristocrats, and were
in every way unsuited to their task; they dissolved the Colonial
Assembly, and substituted for it a commission, consisting of six
whites of the stamp suited to them, and six freedmen. They decided
to crush the respectable classes, whom they called Royalists,
because they would not join in revolutionary excesses, and the
massacre commenced at the Cape.
Polvérel appears to have had some idea of the responsibility of his
position, though both cruel and faithless; but Sonthonax was but a
blatant babbler, with some talent, but overwhelmed by vanity. He
caused more bloodshed than any other man, first setting the lower
white against the rich, then the mulatto against the white, and then
the black against both. Well might the French orator declare on
Sonthonax’s return to France that “il puait de sang.” The third
commissioner, Aillaud, thinking, very justly, that his companions were
a couple of scoundrels whom he could not control, embarked
secretly and left for home. Whilst these commissioners were
employed in destroying the fairest colony in the world, France, in a
moment of excited fury, declared war against the rest of Europe, and
a new era opened for Hayti.
Many of the more influential and respectable inhabitants of all
colours, utterly disgusted by the conduct of the different parties,
thought that the war between England and France would give them
some chance of rest from the excesses of the insurgent blacks; and
the factious freedmen, supported by that fou furieux, Sonthonax,
sent to Jamaica to invite the Governor to interfere and take
possession of the colony.
England did interfere, but in her usual way, with small expeditions,
and thus frittered away her strength; but the resistance made was in
general so contemptible, that with little effort we succeeded in taking
Jérémie in the south, and then St. Marc, and subsequently Port-au-
Prince. Had we sent a large army, it is equally possible that we
should not have succeeded, as the intention was to reimpose
slavery. As the garrison of Jamaica could only furnish detachments,
the British authorities began to enlist all who wished to serve
irrespective of colour, and being supported by those who were weary
of anarchy and revolutionary fury, were soon able to present a very
respectable force in the field. The Spaniards, aided by the bands of
revolted negroes, overran most of the northern province; in this they
were greatly aided by Toussaint L’Ouverture, who now began to
come to the front. Sonthonax, whose idea of energy was simply to
massacre and destroy, ordered that every place his partisans were
forced to evacuate should be burnt. At the same time he thought that
a little terror might be of service, so he erected a guillotine in Port-
au-Prince; and having at hand a Frenchman accused of being a
Royalist, he thought he would try the experiment on him. An
immense crowd of Haytians assembled to witness the execution; but
when they saw the bright blade descend and the head roll at their
feet, they were horror-stricken, and rushing on the guillotine, tore it to
pieces, and no other has ever again been erected in Hayti.
Curious people! they who never hesitated to destroy the whites,
guilty or innocent, or massacre, simply because they were white,
women and children, down to the very babe at the breast, who
invented every species of torture to render death more hideous,
were horrified because a man’s head was chopped off, instead of his
being destroyed in a fashion to which they were accustomed, and
this at a time when white, coloured, and black were vying with each
other in arts of bloodthirsty cruelty!
The whole country was in terrible confusion; the French had not one
man who had the talent or influence to dominate their divided
factions; the coloured were represented by such respectabilities as
Pinchinat, Bauvais, and Rigaud, but without one of incontestable
superiority; the blacks were as yet led by such men as Jean François
and Biassou, who must even make the respectable negroes blush to
acknowledge that they were of the same race; yet, as I have said,
there was one man coming to the front who was to dominate all.
Amid the many heroes whose actions the Haytians love to
commemorate, Toussaint L’Ouverture does not hold a high rank. And
yet the conduct of this black was so remarkable as almost to
confound those who declare the negro an inferior creature incapable
of rising to genius. History, wearied with dwelling on the petty
passions of the other founders of Haytian independence, may well
turn to the one grand figure of this cruel war. Toussaint was born on
the Breda estate in the northern department, and was a slave from
birth; it has been doubted whether he was of pure negro race. His
grandfather was an African prince, but if we may judge from the
portraits, he was not of the pure negro type. Whether pure negro or
not, there is no doubt of the intelligence and energy of the man.
Though but a puny child, by constant exercise and a vigorous will he
became as wiry and active as any of his companions, and,
moreover, gave up much of his leisure time to study. He learnt to
read French, and, it is said, in order to understand the Prayer-Book,
a little Latin; but he never quite mastered the art of writing. He was
evidently trusted and kindly treated by his master’s agent, who gave
him charge of the sugar-mills. There is an accusation constantly
brought against Toussaint, that of being a religious hypocrite, but his
early life shows that it is unfounded. Whilst still a slave, his principles
would not allow him to follow the custom of his companions and live
in concubinage; he determined to marry, though the woman he
chose had already an illegitimate son named Placide, whom he
adopted. It is pleasing to read of the happy domestic life of
Toussaint, and it is another proof of that affectionate disposition
which made those who served him devoted to him.
When the insurrection broke out in the northern province, Toussaint
remained faithful to his master, and prevented any destruction on the
estate; but finding ultimately that he could not stem the tide, he sent
his master’s family for safety into Cap Haïtien, and joined the
insurgents. He was at first appointed surgeon to the army, as among
his other accomplishments was a knowledge of simples, which had
given him great influence on the estate, and was now to do so in the
insurgent forces. He liked this employment, as it kept him free from
the savage excesses of his companions, who were acting with more
than ordinary barbarity.
The three leaders of the insurgents were then Jean François, a
negro, about whom opinions differ. St. Remy says he was
intellectual, though the general idea is more probable, that he was
an energetic savage. Biassou was sensual and violent, as cruel as
man could be and an avowed leader of the Vaudoux sect, and
apparently a Papaloi; but the vilest of the three was Jeannot. He
loved to torture his white prisoners, and drank their blood mixed with
rum; but he was as cowardly as he was cruel, and the scene at his
execution, when he clung to the priest in frantic terror, must have
afforded satisfaction to the friends of those whom he had pitilessly
murdered. Jeannot was also a great proficient in Vaudoux practices,
and thus gained much influence with the ignorant slaves; it was this
influence, not his cruelties, which roused the anger of Jean François,
who seized and summarily shot him.
It is curious to read of the projects of these negro leaders. They had
no idea of demanding liberty for the slaves; they only wanted liberty
for themselves. In some abortive negotiations with the French, Jean
François demanded that 300 of the leaders should be declared free,
whilst Toussaint would only have bargained for fifty. The mulatto
leaders, however, were most anxious to preserve their own slaves,
and, as I have related, gave up to death those blacks who had aided
them in supporting their position; and a French writer records that up
to Le Clerc’s expedition, the mulattoes had fought against the blacks
with all the zeal that the interests of property could inspire.
The blind infatuation of the planters prevented their accepting Jean
François’ proposition; they even rejected it with insult, and savagely
persecuted the negroes who were living in Cap Haïtien. Biassou
then ordered all his white prisoners to be put to death; but Toussaint,
by his eloquent remonstrances, saved them. Other negotiations
having failed, Biassou attacked the French lines, and carried them
as far as the ramparts of the town. The planters had brave words,
but not brave deeds, with which to meet their revolted bondsmen. All
the black prisoners taken by the insurgents were sent over the
frontiers and sold as slaves to the Spaniards. Toussaint
remonstrated against this vile traffic, but never shared in it. The new
Governor, Laveaux, at this time nearly stifled the insurrection,
dispersing all the insurgent forces; but, as usual, not following up his
successes, allowed the negroes again to concentrate. No strength of
position as yet enabled the blacks successfully to resist the white
troops.
When the negro chiefs heard of the death of Louis XVI., they thought
they had lost a friend, and openly joined the Spaniards in their war
on the French Republic.
At this time Sonthonax and Polvérel acted as if they intended to
betray their own country, by removing the chief white officers from
command and entrusting these important posts to mulattoes. It was
not, however, treachery, but jealousy, as such a man as General
Galbaud could not be made a docile instrument in their hands. Then
finding that power was slipping from them, they proclaimed (1793)
the liberty of all those slaves who would fight for the Republic.
In the meantime Toussaint was steadily gaining influence among his
troops, and gradually freeing himself from the control of Biassou,
whose proceedings had always shocked him; and some successful
expeditions, as the taking of Dondon, added to his prestige. Whilst
fighting was going on throughout the northern provinces, Sonthonax
and Polvérel were solemnising pompous fêtes to celebrate the
anniversary of the taking of the Bastile. It is singular what a passion
they had for these childish amusements.
Rigaud, a mulatto, in future days the rival of Toussaint, now appears
prominently upon the scene, being appointed by the commissioners
as chief of the northern department.
Toussaint continued his successes, and finding that nothing could be
done with the estates without the whites, appeared anxious to induce
them to return to superintend their cultivation, and he succeeded in
inducing many hundreds to reside in their devastated homes.
Alarmed by the continued successes of Toussaint, Sonthonax
proclaimed in August 29, 1793, the liberty of all, which, under the
circumstances, may be considered the only wise act of his
administration.
The people of the north-west, however, were weary of the tyranny of
the commissioners, and, being probably privately informed of
Toussaint’s intentions, surrendered Gonaives to him, and the rest of
the neighbouring districts followed. A new enemy, however, now
appeared in the shape of the English, who took possession of St.
Marc with seventy-five men,—so like our system! In June 1794 Port-
au-Prince surrendered to the English after a faint resistance, the
commissioners retiring to Jacmel, from whence they embarked for
France, to answer for their conduct. At that time Port-au-Prince was
in a fair state for defence; but Captain Daniel of the 41st took the
famous fort of Bizoton by storm with sixty men, and then the English
advanced on the town. The effect of having replaced the French
officers by untrained mulattoes was here apparent: though
everything had been prepared to blow up the forts, nothing was
done; the garrison fled, leaving 131 cannon, twenty-two laden
vessels, with 7000 tons more in ballast, and all their stores and
ammunition.
At this time Jean François became suspicious of Toussaint and
arrested him, but he was delivered by Biassou. Toussaint had for
some time been meditating a bold stroke. The proclamation by
Sonthonax of the freedom of the blacks probably worked on him, and
he determined to abandon the party of the king of Spain, which was
that of slavery, and join the French Republic. He did so, proclaiming
at the same time the freedom of the slaves. His soldiers sullied the
change by massacring two hundred white planters, who, confiding in
the word of Toussaint, had returned to their estates.
The new General of the republic now acted with energy against Jean
François, drove him from the plains, and forced him to take refuge
with his followers in the Black Mountains. Success followed success,
until Toussaint found himself opposite St. Marc; but his attack on that
town was easily repulsed by its garrison in English pay. His activity
was incessant, and he kept up constant skirmishes with all his
enemies. He appeared ever unwearied, whatever might be the
fatigue of his companions.
Toussaint had naturally observed, that however his men might
succeed against the undisciplined hordes of Jean François, they
could do nothing against a disciplined force. He therefore, in 1795,
formed four regiments of 2000 men each, whom he had daily drilled
by French soldiers, his former prisoners; and, I may notice here, with
such success, that English officers were subsequently surprised at
their proficiency.
Rigaud had, in the meantime, with his usual jactancy, marched on
Port-au-Prince to expel the English, but was repulsed. Toussaint
assembled all his army for another attack on St. Marc, and for three
days, from the 25th to 27th July 1795, tried by repeated assaults to
capture the town; but English discipline prevailed, and the small
garrison foiled every attempt.
It is noticed by St. Remy that Toussaint, when once he gave his
word, never broke it, which was a new experience among these
unprincipled leaders; and it is added, that he never had any
prejudice of colour.
An important event for the French in 1795 was the peace made
between France and Spain, by which Santo Domingo was ceded to
the former.
The year 1796 was ushered in by various English expeditions and
skirmishes, and their failure to take Leogâne. Some of the Haytian
accounts are amusing. Pétion defended the fort of Ça-ira against the
whole English fleet until the fortifications were demolished. Fifteen
thousand English bullets were showered into the place, and yet only
seven Haytians were killed. It looks as if the garrison had quietly
retired and left us to batter away at the earthworks.
One is often surprised, in reading Haytian accounts of the war, at the
defeats of the English, which make one wonder what could have
become of the proverbial courage and steadiness of our men; but a
little closer inquiry shows that in most of these instances there were
few or no English present, only black and coloured men in our pay,
or planters who had taken our side in the war, none of whom were
more than half-hearted in our cause.
The French were also weakened by internal dissensions. General
Vilatte, a mulatto, incited a revolt in the town of Cap Haïtien, arrested
the French governor, Laveaux, and threw him into prison. The latter
called on Toussaint to aid him, and the black general had the
supreme satisfaction of marching into the town and freeing the white
governor. With what curious sensations must Toussaint have
performed this act of authority in a place that had only known him as
a slave! Laveaux received him with enthusiasm, and promoted him
from the grade of General of Brigade, in which the French
Government had confirmed him, to be Lieutenant-General of the
Government, April 1, 1796. This successful movement confirmed the
ascendancy of the blacks in the north, and Vilatte had shortly to sail
for France, from whence he returned with the expedition sent to
enslave his countrymen.
Sonthonax and a new commission now arrived at Cap Haïtien, to
find Rigaud almost independent in the south, and Toussaint master
in the north. Both Laveaux and Sonthonax are accused of
endeavouring to set the blacks against the mulattoes. Laveaux
having returned to France as deputy for the colony, Sonthonax
remained at the head of affairs, and one of his first acts was to name
Toussaint General of Division.
Toussaint was in the meantime organising his army and working
hard at its drill; he then started to the attack of Mirebalais, a port
occupied by a French planter in our service, the Count de Bruges,
who appears to have retired, with numerous forces, without much
resistance. He probably could scarcely trust his raw levies.
Sonthonax was so pleased with this important success that he
named Toussaint Commander-in-Chief of the army in Santo
Domingo, which step displeased Rigaud, who was thus placed under
the orders of a black general.
Toussaint appears to have felt a justifiable distrust of Sonthonax. He
saw that he desired to set black against coloured, that he was even
talking of the independence of the island, perhaps only to test
Toussaint’s fidelity; but he had no difficulty in assuring himself that
wherever Sonthonax was, mischief was sure to be brewing. He
therefore had him elected deputy, and sent him to follow Laveaux.
Sonthonax did not like this step, and made some show of opposition,
but Toussaint informed him that if he did not embark immediately he
would fall on Cap Haïtien with 20,000 men. This irresistible argument
made Sonthonax give way. As he went down to the boat that was to
take him on board, the streets were lined by crowds of all colours;
but not one said, “God bless him,” as he had betrayed every party in
turn; and his one wise act of proclaiming the liberty of the slaves was
simply a political expedient, wrung from him by the circumstances of
the hour. He was a boasting, bad man, whose history is written in the
blood of thousands of every colour.
The Directory, alarmed at the growing influence of Toussaint, sent
out General Hédouville as pacificator of the island, and, to produce
harmony, gave him power to defeat Rigaud. On his arrival at Cap
Haïtien he summoned the rivals to confer with him, and Rigaud and
Toussaint, meeting at Gonaives, went together to the capital.
Hédouville, jealous of the power of the latter, gave all his attention to
the former, whilst the newly-arrived French officers laughed at the
negro and his surroundings. Toussaint, suspecting a plot to arrest
him and send him off to France, and probably very jealous of the
superior treatment of his rival, withdrew from the city and returned to
his army.
The English had now become convinced that it was useless to
attempt to conquer the island; their losses from sickness were
enormous, and the influence of the planters was of no avail. Their
black and coloured mercenaries were faithless, and ready to betray
them, as at St. Marc, where the English governor had to shoot a
number of traitorous mulattoes who would have betrayed the town
into the hands of the blacks. They therefore determined to treat with
Toussaint, and evacuated St. Marc, Port-au-Prince, and L’Arcahaye.
He thus gained at one stroke what no amount of force could have
procured for him.
Toussaint, with a greatness of mind which was really remarkable,
agreed to allow those French colonists who had sided with us to
remain, and promised to respect their properties; and as it was
known that this magnanimous black ever kept his word, no important
exodus followed our retreat. Admiral Maitland had arranged for the
surrender of the mole with General Hédouville, but on finding his
hostility to the French planters, whom he insisted on Toussaint
expelling the country, our naval chief made a new settlement with the
black general and handed the mole over to him. Maitland invited
Toussaint to visit him, and reviewed before him the English army
collected from the rest of the country. He was exceedingly pleased
by the treatment he received from our people, and ever after showed
a kindly feeling towards them.
One can scarcely understand why the English gave up the mole,
which a small garrison could have defended, and the importance of
the position in naval warfare is indisputable. If we wanted to gain
Toussaint and induce him to declare the island independent, we
should have held it until that desirable event had happened.[4]
Toussaint treated the old colonists with distinction, and left many of
them in the commands they had held under the English. Hédouville
protested against this good treatment of his own countrymen, and
annoyed Toussaint so much that he began to consider whether it
would not be prudent to send Hédouville to follow Sonthonax.
Hédouville was not the only one who objected to the good treatment
of the planters; his opinion was shared by the black general, Moïse,
then commanding in the northern department. To show his
displeasure at Toussaint’s humanity, he caused some white colonists
to be murdered in the plains near Cap Haïtien. Hédouville, frightened
by the practical result of his teaching, summoned Toussaint to his
aid; but doubtful of his general, he escaped on board a vessel in
harbour. In order to do all the mischief he could before leaving, he
wrote to Rigaud, saying he was no longer to obey Toussaint, but
consider himself the governor of the southern department, adding
that Toussaint was sold to the English and the émigrés.
It was Hédouville who thus laid the foundation of that civil war which
degenerated into a struggle of caste. The agents sent by France
proved each worse than the other. Rigaud, with the true spirit of a
mulatto, also wrote to Toussaint to drive out the white planters. When
his teaching had incited his soldiers to murder his white countrymen,
all Rigaud could say was, “Mon Dieu, qu’est que le peuple en
fureur?”
On the departure of Hédouville, Toussaint invited Roume to leave
Santo Domingo and come and reside at Port-au-Prince, where they
met in January 1799. Roume appears to have had a profound
admiration for Toussaint. We find him writing to General Kerverseau
as early as February 1795, and describing the negro chief as a
philosopher, a legislator, a general, and a good citizen.
Roume had a difficult part to play. He was most anxious to bring
about concord among the different generals, and therefore invited
Rigaud and Bauvais to meet Toussaint on the fête of the 4th of
February to commemorate the memorable day when the National
Convention proclaimed full liberty to the slaves. A little outward
concord was obtained, but soon after, Toussaint, suspecting a plot,
arrested some mulattoes. A slight disturbance among the negroes
taking place at Corail, thirty were captured and died in prison, from
“the effect of the gas created by white-washing the prison.” This
remarkable excuse did not satisfy Toussaint, who believed the men
to have been assassinated by Rigaud’s officers.
Toussaint and Roume had in the meantime left for Cap Haïtien,
where they appear to have negotiated a commercial treaty with the
Americans, and some arrangement was also, it is said, made with
Admiral Maitland.
It was during this year that Captain Rainsford visited Cap Haïtien. As
we were at war with France, our officer passed as an American, and
soon after landing was met by Toussaint in the street, who came up
to him to ask the news. He next saw him at a restaurant where all
classes dined, and he sat down at a long table with a drummer-boy
next him and the general not far off. The latter used to say that
except on service he did not see the necessity of making
distinctions. In the evening Captain Rainsford played billiards with
Toussaint at the public tables.
Rainsford appears to have been as much struck with Toussaint as
Roume. He says he was constrained to admire him as a man, a
governor, and a general. He describes him as a perfect black, then
about fifty-five years of age, of a venerable appearance, and
possessed of uncommon discernment and great suavity of manners.
He enters fully into a description of his dress. The general wore as a
uniform a kind of blue spencer, with a large red cape falling over his
shoulders, and red cuffs, with eight rows of lace on the arms, and a
pair of huge gold epaulettes, a scarlet waistcoat, pantaloons and
half-boots, a round hat with red feather and national cockade, and an
extremely large sword was suspended from his side. Rainsford adds:
“He receives a voluntary respect from every description of his
countrymen, which is more than returned by the affability of his
behaviour and the goodness of his heart.” The vessel in which
Rainsford was a passenger was next driven by stress of weather into
Fort Liberté. Arrested as a spy, he was condemned to death; but
Toussaint would not permit the sentence to be carried out. He
dismissed him with a caution not to return without passports.
There is much exaggeration in the account given by Rainsford of
what he saw and heard at Cap Haïtien. He talks of 62,000
inhabitants leaving the city after the great fire, and of Toussaint
reviewing his army of 60,000 men and 2000 officers. He was a better
judge probably of their manœuvres. He says that the soldiers went
through their exercises with a degree of expertness he had seldom
before witnessed. At the signal of a whistle, a whole brigade ran
three or four hundred yards, and then separating, threw themselves
on the ground, keeping up a heavy fire from every kind of position.
The complete subordination and discipline astonished him.
Rigaud having evidently decided to carry out General Hédouville’s
instructions and defy both Toussaint and Roume, it became
necessary to subdue him. Ten thousand men were collected at Port-
au-Prince, whilst Rigaud concentrated his army at Miragoâne, and
commenced the war by seizing Petit Goave, and there, without the
slightest excuse, murdered all the white inhabitants. It is singular to
contrast the conduct of the two generals: Toussaint, without the
slightest prejudice of colour, and Rigaud, the mulatto, the son of a
Frenchman, showing “how he hated his father and despised his
mother” by murdering the whites and refusing to obey a black.
Roume published a proclamation, calling on the north and west to
march against the south to restore unity of command; but before
entering on the campaign, Toussaint had to return to the north to
repress some movements, and on his journey back almost fell into
two ambuscades, from which he was saved by the fleetness of his
horse. Toussaint shot those who were concerned in these
conspiracies, whether black or coloured; but the stories told by St.
Remy of his ordering 180 young mulatto children to be drowned at
L’Arcahaye, is so contrary to everything we know of his character,
that we may set this fable down to caste hatred. That he was severe
with his enemies is no doubt true.
Then began the wearisome civil war in the south by Dessalines
driving back Rigaud’s army, and by the siege of Jacmel, which lasted
four months. Pétion greatly distinguished himself in the defence, and
conducted the evacuation. It appears unaccountable that while the
main body of Toussaint’s army was thus engaged, Rigaud remained
passive; it can only be explained by mean jealousy, which was his
characteristic to the last year of his life. But his principal fault was
jactancy, shown by his proclamation, saying, “Let the enemy appear
and I’ll slay them,” which was answered by another from Toussaint
offering pardon and peace.
Toussaint’s army in the south was commanded by Dessalines and
Christophe, or, in other words, by two ferocious blacks, to whom pity
was unknown. Dessalines soon forced the strong position near
Miragoâne, and defeated Rigaud and Pétion, driving them before
him towards Les Cayes. Rigaud ordered his officers to burn and
destroy everything in their retreat, which naturally roused the
inhabitants against these measures of defence, and they became
clamorous for peace.
In the meantime the Consular Government at Paris sent out officers
to Hayti, among whom was Colonel Vincent. Toussaint was
confirmed in his position as General-in-Chief, but the war in the
south was disapproved. Colonel Vincent was enabled to tell him of
all the changes that had taken place in France, but the black chief
could readily see that he was suspected by the French Government.
He, however, sent Vincent and other officers to Les Cayes to offer
peace. It is amusing to read the account given of Rigaud. He went to
see the French officers, a blunderbuss on his shoulder, pistols in his
belt, a sword on one side and a dagger on the other. On hearing that
his conduct did not meet with the support of the French Government,
he drew his dagger as if to stab himself, but did not do so: he
preferred making a truce and embarking for France, together with his
principal officers.
Toussaint entered Les Cayes on the 1st August 1800, and showed
the grandeur of his character by implicitly carrying out his original
proclamation. He again proclaimed union and peace, and pardoned
all those who had been led into rebellion against him; and, to the
astonishment of his enemies, he kept his word and behaved with
great magnanimity. Even his worst opponents were then constrained
to allow that, when once given, he never broke his word.
If Toussaint was clement, Dessalines was the reverse; and the
mulattoes declare that he killed upwards of ten thousand of their
caste, which is probably more of that colour than the southern
province ever contained.
Whilst this campaign was at its height, Roume committed the
indiscretion of trying to raise a revolt in Jamaica. His agents were
taken and hung; and as a punishment the English captured one of
Toussaint’s convoys destined for Jacmel. The General, very angry
with Roume, sent for him; he refused to come, upon which Toussaint
went to Cap Haïtien, and after reproaching him, insisted on his giving
him an order to invade the eastern end of the island. He refused at
first, but ultimately yielded to the menaces of General Moïse.
When the southern campaign was over, Toussaint began to prepare
for the occupation of Santo Domingo, but finding that Roume was
inclined to withdraw his permission, he arrested him and sent him
back to France. Toussaint’s prestige was now so great in the island,
that little resistance was made, and he occupied the city of Santo
Domingo almost without a shot being fired, and established his
brother Paul as governor.
The whole of the island being now under one chief, Toussaint
decided to put into execution a constitution which he had already
promulgated. It was certainly a model of liberality. It placed all
colours equal before the law; employments might be held by black,
white, or coloured; as much freedom of trade as possible; a governor
to be named for five years, but on account of the eminent services of
Toussaint, he was to occupy that post for life, with power to name his
successor. He sent this constitution to Buonaparte for approval; but
evidently it was too much or too little. Had he boldly proclaimed the
independence of the island, he might have saved the country from
great misfortunes.
Peace being now re-established over all the island, Toussaint began
his civil administration. All accounts are unanimous in declaring that
he himself governed admirably, but the instruments he had to
employ were too often utterly unworthy. He organised the country
into districts, and appointed inspectors to see that all returned to
their work, and decreed that a fifth of the produce should be given to
the labourers. Dessalines was appointed inspector-in-chief; and if a
man without any sentiment of humanity was required for that post,
surely Dessalines was a good choice, as he was ready to beat to
death any man, woman, or child whom he chose to accuse of
idleness. Toussaint, looking to difficulties ahead, continued to pay
the greatest attention to his army, organised it with care, and
preserved the strictest discipline. The stick appears to have been as
popular in that day as it is now.
Toussaint was very friendly to the whites, and was most anxious to
encourage them to aid in developing the country. This excited the
jealousy of some of his generals; among others, of Moïse, his
nephew, who to thwart his uncle’s projects incited a movement in the
north to massacre the French. Several having fallen victims,
Toussaint hastened to the spot, and finding that Moïse was the real
instigator of the murders, sent him before a court-martial. He was
sentenced to death, and very properly shot on the 26th November
1800. Had Toussaint connived at these crimes, he would have upset
all confidence in his trusted word.
All was now progressing on the island; the government was regularly
administered, the finances were getting into order, and agriculture
was beginning to raise its head, when Buonaparte, having secured
peace in Europe, determined to recover the Queen of the Antilles
and restore slavery. The story of this attempt may be told in a few
words. General Leclerc started with 30,000 men to subdue the
island, and although the evident intention of the French Government
was to restore slavery, the principal mulatto officers accompanied
him, chief among whom were Rigaud, Pétion, and Vilatte. It is true
the mulattoes had not yet frankly accepted the full freedom of the
blacks.
General Leclerc did all he could to cause an armed resistance, as a
peaceful solution would have given him no military glory; therefore,
instead of sending Toussaint his children and the letter he bore from
Buonaparte, he tried to surprise Cap Haïtien. But General
Christophe, before retiring with its garrison, set fire to the town and
almost destroyed it; and Toussaint sent instructions to his other
generals to follow this example. Leclerc, mortified by the result of his
first attempt, now thought of writing to Toussaint, and sent him his
two boys. Toussaint behaved with great nobility of character, and
asked naturally, “Why words of peace but acts of war?” Finding that
he could not circumvent his black opponent, Leclerc published a
decree in February 1802 placing both Toussaint and Christophe
“hors la loi.” This was followed by the burning of the towns of St.
Marc and Gonaives, and a retreat of the black troops towards the
interior.
Whenever you see a fortress in Hayti, you are sure to be told that it
was built by the English; among others thus known was La Crête à
Pierrot. The French general Debelle, treating with contempt these
negro troops, attacked this fort with an inefficient force and was
beaten; then Leclerc made an assault in person, but he also was
beaten, and was forced to lay siege to it. The attack and defence
were conducted with singular courage, particularly the latter,
considering the quality of the men, who had never before been
measured with real white troops: however, after having repulsed
several assaults, the garrison evacuated the forts. Pétion
commanded a portion of the French artillery in this attack on his
countrymen struggling for freedom. If he loved France but little, he
hated Toussaint more.
Even the enemies of the great black general are full of admiration of
the courage displayed by him during all this important struggle, and
especially dwell on his devotion to his wounded officers. I may here
remark that the French general Rochambeau distinguished himself
for his cruelties, and shot every prisoner that fell into his hands;
which fully justified the retaliation of the Haytians.
Discouraged by a series of reverses which followed the loss of La
Crête à Pierrot, where it was amply proved that the negro soldiers,
even among their mountains, were no match for the disciplined
troops of France, some of the black generals, as Christophe, began
to make terms with the French; and Toussaint, finding himself thus
abandoned, wrote to Leclerc offering submission. As it was
accepted, he went to Cap Haïtien to meet the commander-in-chief,
and was received and treated with much distinction. He then
returned to the village of Marmalade, and there issued orders to all
his officers to cease opposition and acknowledge the French
authorities, and peace was established throughout the island.
General Leclerc was but temporising with these black leaders; his
secret orders were, not only to arrest Toussaint, Dessalines, and
Christophe, but to re-establish slavery. He found, however, the last
two so zealous in carrying out his instructions to disarm the
population, that he preserved them in their commands.
Toussaint himself, having ever kept his word, could not believe that
the French commander-in-chief would not keep his, and therefore, in
spite of all warnings that treachery was meditated, stayed quietly on
his estate at Ennery. He there received a letter from General Brunet,
asking for an interview at a certain spot; Toussaint went, and was
immediately arrested under circumstances of the greatest treachery.
He was bound with ropes and embarked on board the French ship
“Creole;” then put on board the “Héros” with all his family and sent to
France. When received on board by Savary, Chef de Division, he
said to him, “En me renversant on n’a abattu à Saint Domingue que
le tronc de l’arbre de la liberté des noirs; il repoussera, parceque les
racines en sont profondes et nombreuses.” When reading this
account of the capture of Toussaint, we can scarcely credit that we
are recording the acts of French officers, whose plighted word was
thus broken.[5]
On Toussaint’s arrival in France he wrote to the French Chief
Consul; but he might as well have written to Dessalines as expect
either mercy or justice from the despot who then ruled France. He
was separated from his family and hurried off to the Château de
Joux in the Alps, where his rival Rigaud was already confined. Here
he died from cold and neglect, under circumstances which raised the
suspicion that the close of this illustrious life was hastened by unfair
means. It is some satisfaction to think that his executioner died also
a prisoner in exile, though surrounded by every comfort that the
generous English Government could afford him.
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