Japan 'zombie' Banks Repaid Most Of 1990s Bailouts

"We have argued that Japan's experience in the 1990s provides useful suggestions as to how our fellow regulators should respond to the ongoing difficulties," he said.

Japan's experience also shows how critical it is to remove toxic assets from bank balance sheets, Sato said, adding that such measures weren't about saving individual banks but about preserving the health of the financial system.

In giving the estimate of nonperforming loans, Sato acknowledged it had been difficult to get a proper assessment of the bad loan damage in Japan while financial markets were in turmoil.

Sato said the exposure of Japanese financial institutions to the latest crisis was minimal, partly because they weren't "innovative," and hadn't invested in what turned out to be risky securities.

The danger for the banks now is the hobbled economy because they hold shares in Japanese companies in what are called "cross-shareholdings," he said.

Japan's top banks sank into the red for the fiscal year ended March because of losses on such stock holdings.