clipped from online.wsj.com

Japan's banks, in particular, had seemed to be in good shape. Remaining cautious after their bad-loan problem, they largely avoided exposure to U.S. subprime mortgages.

But the falling shares highlight one area of weakness. Japan's banks are allowed to invest some of their capital base -- the pool of funds against which they lend money -- in stocks. The practice is a legacy of the traditional practice of "cross shareholding," where banks and their borrowers held stakes in each other to cement ties. Such holdings by Japan's banks now represent about 3% of the value of the Japanese stock market.

Mitsubishi UFJ held a portfolio of Japanese stocks valued at 6.1 trillion yen, with unrealized gains of 1.8 trillion yen, as of June. With Japan's stock market falling 40% since then, the portfolio is estimated to have shrunk to less than 3.7 trillion yen, representing a valuation loss of 630 billion yen, according to an estimate by Kristine Li, a banking analyst for KBC Securities in Tokyo.