Bank of Tokyo, Ltd.
Bank of Tokyo, Ltd.
Bank of Tokyo, Ltd.
6-3, Nihonbashi Hongokucho 1-chome
Incorporated: 1880 as Yokohama Specie Bank
Assets: ¥23 trillion
Stock Index: Tokyo Osaka
The Bank of Tokyo is Japan’s leading forex, or foreign exchange, bank. It acquired and has maintained that distinction mainly by government fiat, as the Japanese government has found it advantageous to designate certain private institutions to perform official functions. After 30 years of strong economic growth, both government and industry have effectively drawn the line between where competition may and may not occur. As a result, a certain interdependency has evolved in which the Bank of Tokyo has a well-established and protected niche.
Many of Japan’s major banks were created shortly after 1868, when with the Meiji restoration the government sponsored a rapid modernization program. The sudden expansion of commerce and industry precipitated a need for banks to serve the zaibatsu, or large conglomerates, as well as entrepreneurs and individual depositors. These early banks were usually capitalized by those they served. But Japan’s imperial family provided 40% of the capital for the Yokohama Specie Bank, the Bank of Tokyo’s predecessor. Far from simply serving the family’s interests, however, the bank was primarily conerned with foreign exchange, trade, and short-term financing. It was named after the specie, a silver coin used as international currency for settling payment between traders.
Established in 1880 in the busy port of Yokohama, the bank gained special status as a foreign-exchange institution in 1887. After acquiring the authority to sell bonds on behalf of the government, it raised ¥10 million from its first issue in 1889.
The Yokohama Specie Bank actively participated in financing Japanese ventures in Taiwan, Korea, and China. Under the protection of government regulations, the bank was largely sheltered from competition with the powerful zaibatsu-afftliated banks as well as the rapidly growing city banks. With such a strong interest in the bank’s functions, the Japanese government began to exercise greater influence over its policies and decisions.
By World War I, the bank’s network of representative offices covered every major trading center in the Pacific and the financial capitals of the world. Japan’s role in Asia, greatly expanded by postwar agreements, contributed further to trade and commerce, and to the foreign-exchange business. No longer dealing only in silver, Yokohama Specie held substantial dollar and sterling reserves.
As militarists gained power in the government during the 1930s, Japanese development of the Asian mainland became increasingly belligerent. As Japan’s war against China, which formally began in 1937, led into World War II, the international trade and industrial finance upon which Yokohama Specie depended were thoroughly disrupted. By the end of the war, Japan had suffered severe damage to its basic industries.
The occupation authority decreed an entirely new set of industrial laws in 1945. The legislation extended to the banking industry, where large banks were divided into smaller ones and forbidden to re-establish preferential relationships with commercial interests. This would have been the case for Yokohama Specie had it not been singled out by General Douglas MacArthur himself to be punished for its role in the Japanese war effort.
With its international assets frozen, Yokohama Specie was forced to rebuild its business completely. It was ordered to change its name—it became the Bank of Tokyo—and, denied access to foreign-exchange business, it started over as a commercial city bank in 1946. The staff, with years of accumulated experience in world currency markets and finance, was clearly frustrated and unenthusiastic about the bank’s new role.
As Japanese trade recovered during the early 1950s, however, there was again a need for a specialized foreign-exchange bank. In 1954, the Diet passed the Foreign Exchange Bank Law, which was specifically intended to reinstate the Bank of Tokyo as the nation’s primary forex dealer. In fairness to competitors, though, the same law restricted the bank’s domestic activities.
In this way the Bank of Tokyo resumed its close relationship with the government’s Ministry of Finance. As an important component of national economic management, the bank was frequently given preferential treatment by the government. It met fewer obstacles when applying to open additional foreign offices and was permitted to lend higher percentages of total capital to single countries than either city banks or long-term credit banks.
Starting in 1955, Japanese economic growth was mainly led by exports. Industrial deregulation permitted many of the former zaibatsu trading companies to reestablish links with their banks. As these banks became more sophisticated, general trading companies such as Sumitomo, Mitsui, and Mitsubishi increasingly worked through their affiliated banks. The Bank of Tokyo, forced into an increasingly narrow role, concentrated on its one field of expertise: foreign exchange.
There were few incentives for the Bank of Tokyo to become a “universal” bank, offering a full complement of banking services. Certain operations, in fact, were restricted by law. Instead, the bank used the profits from forex dealing to fund a new campaign to win back business that had been siphoned off by competitors. As an institution intimately involved in both domestic economic management and international finance, the Bank of Tokyo emphasized its multinational character by increasing its hiring of local talent at its various overseas offices.
The Bank of Tokyo was jolted during the oil crisis of 1973-1974, but was actually hurt more by aftereffects suffered by its clients—many of them foreign national banks. As the world economy struggled to regain its balance, many indebted Third World nations encountered financial crises. Chief among them was Brazil, to which the Bank of Tokyo had lent substantial sums. Rather than writing off losses there, however, the bank negotiated a rescheduling and took an active role in strengthening its client’s financial position. The bank thus established itself as a trustworthy partner, despite severe losses.
The combined effects of deregulation, competition, and basic changes in the Japanese economy led many Japanese banks to become more resourceful and diverse. Bank of Tokyo, however, first attempted to further consolidate its position in foreign exchange. When even that traditional strength became squeezed, the bank then attempted to raise competitiveness by increasing efficiency and emphasizing more profitable operations such as securities, international ventures, and fee services, gradually converting itself into an investment bank.
The Bank of Tokyo financed industrial resource projects in Canada, Australia, Burma, and the Arctic, and served as an advisor on projects in Singapore and Thailand. In the process, it developed a specialty in railway finance. A long-standing avoidance of business with Taiwanese interests paid off in the early 1980s when the bank was chosen to participate in projects in mainland China.
Still, the unique character and organization of the Bank of Tokyo allowed it to corner the market in long-dated forward deals, in which it surpassed even the long-term credit banks. The bank’s strength in this area derives not just from its tremendous capital resources, but also from its ability to manage the foreign-exchange play that often occurs in such deals. The bank has also begun to take on trust banks and securities houses by issuing various kinds of bank debentures.
The bank’s greatest strengths of late, however, are attributable to the importance it places on intelligence in local markets. A major player in international finance, the Bank of Tokyo has 104 branches, offices, and affiliates worldwide (not including its California subsidiary’s 142 branches), but only 32 branches in Japan. It employs more foreigners than Japanese, by a ratio of seven to five. Given the extraordinary pace of internationalization among Japanese companies and Japan’s growing presence in the world economy, the Bank of Tokyo seems poised for success.
California First Bank; The Bank of Tokyo Trust Company; The Chicago-Tokyo Bank; Tokyo Bancorp International (Houston) Inc.; Bank of Tokyo International; The Bank of Tokyo Canada; The Bank of Tokyo (Panama), S.A.; Banco de Tokyo S/A; Bank of Tokyo (Curacao) Holding N.V.; Bank of Tokyo (Switzerland) Ltd.; The Bank of Tokyo (Holland) N.V.; Banque Européenne de Tokyo S.A.; The Bank of Tokyo (Luxembourg) S.A.; Bank of Tokyo (Deutschland) AG; BOT Lease (Deutscheland) GmbH; BOT Finanziaria Italiana S.p.A. (Milano); Bank of Tokyo International Limited; Saudi International Bank; The Bangkok Tokyo Finance and Securities Co., Ltd.; Bangkok Tohgin Holding Co., Ltd.; BOT International (Singapore) Ltd.; BOT International (H.K.) Ltd.; BOT Finance (H.K.) Ltd.; Kincheng-Tokyo Finance Co., Ltd.; Bank of Tokyo Australia Ltd.; BOT Securities Inc.; BOT Futures (Singapore) Pte. Ltd.