Throughout Japan, bank ledgers hold records of accounts long forgotten or abandoned by their depositors. Dormant accounts pad a bank’s profits, but is there a way this “sleeping money” can be awoken and roused into action to benefit society?
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A dormant bank account is one that has seen no activity over a long period of time, be it withdrawals, deposits, etc.
To be classed as dormant, an account has to remain unused for a set period of time or after the final maturity date for a fixed deposit account. This period is 10 years for banks and five years for the Japan Post Bank. In all cases, the banks are no longer in touch with the original depositors.
According to a survey by the Financial Services Agency, more than 80 billion yen’s worth ($877 million) of new dormant accounts come into existence each year. The figure for fiscal 2009 and 2010, for example, were 88.3 billion yen and 88.2 billion yen, respectively. Most of this is made up of accounts with less than 10,000 yen, but it all adds up to a whopping 2 trillion yen over the last 20 years alone. Japan Bankers Association rules stipulate that even if a bank books this money as earnings, it must be returned to the depositor if requested. However, only 30 to 40 percent of this cash pile ever finds its way back to the account-holders.
RECLAIMING MONEY OFTEN TOO MUCH TROUBLE
So what explains all these dormant accounts? When an account has seen no activity for 10 years, a bank is supposed to notify the customer that the account has now become dormant. No notification is necessary for accounts of less than 10,000 yen, though, so many depositors just end up forgetting about them.
Even when a customer is notified, many banks stipulate that the money can only be refunded at the branch where the deposit was originally made. If someone has moved away from their hometown, for example, the cost of traveling back may actually outweigh the money sitting in the account. As a result, the customer might put things off and eventually forget about the whole thing.
Also common are cases where the depositor dies. When sorting through the deceased’s possessions, relatives may come across a passbook for the now-dormant account. This is where the hard work starts. In order to close the account, the relatives will need to gather a great many documents, such as the deceased’s family register from birth until death, for example, or the registers and certificates of seal impressions for all the heirs.
This involves a great deal of work, so if the deposited amount does not add up to much, many people just give up the effort.
Until the Customer Identification Law was passed in 2003, people in Japan could set up accounts under the names of pets and so on. These kinds of accounts proliferated during the bubble era, when banks fought fiercely to obtain customer deposits. This is a further reason behind the explosion in dormant deposits.
But is there a way to put this colossal cash pile to some social good? Perhaps it could help support children from low-income families or subsidize their education through scholarships. Maybe it could be used to bankroll socially oriented start-ups in sectors such as the environment or public welfare. The money could even be used to help people in disaster-hit areas get back on their feet.
There is always the possibility that some of this money might eventually need to be paid back. Yet new dormant accounts to the tune of 80 billion yen come into existence each year, and even if we assume that 70 percent of this would be paid back, around twice the current repayment amount, then this would still leave 30 percent, or about 25 billion yen.
The JBA takes a dim view of using this surplus money for public good. Mainly because of the costs involved in building the architecture to manage all these accounts, but with a little bit of creative thinking, it shouldn’t cost too much to get the system up and running.
DORMANT FUNDS USED TO HELP THE POOR IN SOUTH KOREA/ BRITAIN
South Korea and Britain have already begun experimenting with such a system.
During the currency crisis of 1997, many South Korean banks needed to be rescued by the government. This in turn led to growing public dissatisfaction with the idea of bailed-out banks using idle deposits to boost their profits.
At that time, the South Korean banking industry fiercely opposed the idea of using these funds for social purposes, but things began to change in 2006, when the country was visited by Bangladeshi banker Muhammad Yunus, former governor of Grameen Bank and winner of the Nobel Peace Prize for his initiatives involving microcredits for the poor.
The visit led South Korean President Roh Moo-hyun to consider the idea of using dormant accounts for microfinancing, with a new law to this effect subsequently introduced in 2007. A foundation has been established to manage these dormant accounts, with the cash used to support social enterprises or provide financing to the poor.
In Britain, meanwhile, the ruling Labor administration began championing the use of dormant accounts in 2004. This idea finally found its way onto the law books in 2008, and remained there after the Conservative Party came to power in 2010.
Accounts worth over 300 million pounds became dormant in Britain between 2009 and 2011. Out of this, about 130 million pounds were set aside to cover any requests for repayment that may arise. Another about 130 million pounds were used to fund social enterprises or schooling for children from low-income households.
With Britain in the grips of a recession, there was no shortage of people needing state help, so this policy met little resistance.
In both countries, depositors can easily obtain information about their dormant accounts over the Internet.
In March 2011, we established the National Commission on Dormant Accounts together with nonprofit organizations, scholars and others in the financial sector. Our goal is to put pressure on banks and the government to implement such systems used in South Korea and Britain.
At a Cabinet-level meeting of the Growth Finance Promotion Council in July last year, the ruling Democratic Party of Japan agreed to introduce the idea of such a system in fiscal 2014. A decision was also reached to write up a new law and establish an organization to centrally manage dormant funds.
Although a new government has now come to power, it remains to be seen if Japan’s lawmakers can rise above partisan party politics to ensure that this "sleeping money" is used for social good. On Jan. 31, the National Commission held a symposium in Tokyo to discuss this issue with Yunus among the guest speakers. Let's hope that Japan's politicians remember there are a lot of people suffering in a slumping economy who could really use the support of such a system.
For more information, see (kyumin.jp)
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President of the Japan Fundraising Association (JFRA)
Uo was born in 1968. He worked for the Japan International Cooperation Agency (JICA) before establishing the JFRA in 2009. He assumed his current position in 2012. Uo is also CEO of Fundrex, a consulting company that advises NGOs on how to raise funds. He also wrote the book “Fundraising ga shakai wo kaeru (Fundraising is Changing the World)” (San-ichi Publishing).
(This article was complied by Noriko Akiyama from Asahi Shimbun GLOBE.)
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