Japan Stops Being Lender to the World : Commerce: The country’s banking crisis may lead to its economy growing at a slower pace.

TOKYO —  Just three years ago, Japan’s big banks were lenders to the world, flush with money from speculative markets in stocks and land.

But after an almost 50% price drop in those markets, banks are being hung out to dry for their excesses. Officials are telling them that taxpayers will not rescue them from a “debt overhang” that could run as high as $500 billion.

Not only is this wringing out of bad loans and property deflation putting a squeeze on bank lending in the “post-bubble” Japanese economy, but the global economy may suffer as well. Japanese banks, which are among the largest in the world, have all but stopped recycling the country’s immense trade surplus.

“This trend should not continue,” says Mokato Ustumi, special adviser to the Finance Ministry. Ustumi says he is “nervous” that Japan is no longer serving as global banker, especially to developing nations.

Analysts foresee a deep change in the Japan that emerges from this banking crisis. Japan’s days as a fast-growing Asian economy could be over, and it may settle into a Western-style “mature” economy with slower growth.

Also, some sacred practices such as never laying off workers and not allowing a single bank to fail since World War II will be seriously challenged.

Japanese officials, in an unusual spirit of laissez-faire discipline, are willing to accept lower economic growth rates rather than bail out the financial system, according to Jesper Koll, chief economist at S. G. Warburg Securities.

Last month, the Finance Ministry estimated that bad loans at 21 major Japanese banks had nearly doubled in six months to more than $100 billion. But other analysts say the figure is much higher, because banks can easily hide the extent of the problem.

“Bad loans will continue to increase, but the pace of the rise is falling,” says Finance Minister Tsutomu Hata. “Considering their resources, the banks should be able to cope with it, although it will take them some time.”