"We can pay you. we have plenty of money. Please don't wor ry." With those words an employee of the failing Kizu cred it union in Osaka opened the doors to hundreds of worried customers anxious to withdraw their savings. The credit union, at 27 branches one of the largest in Japan , went bust last week with $6.1 billion in bad debts; and news that it was teetering spurred a week-long run in which Kizu customers withdrew more than $3 billion in just two days--at least $1 billion of it provided by the Bank of Japan as an emergency loan. While the credit union was being drained dry, TV news cameras captured a human chain of bank employees heaving heavy, shrink-wrapped slabs of 10,000-yen notes from man to man on their way from an armored car to the bank's vault.

Kizu's woes are hardly unique in Japan: virtually the entire banking system is wobbling under the weight of bad loans. Last week the Ministry of Finance not only shut down Kizu (except for allowing withdrawals) but also took over Hyogo Bank, a large regional institution near Kobe that is saddled with $7.9 billion in bad loans. Finance Minister Masayoshi Takemura reassured the country, "You don't have to worry about your deposits," and ministry officials explained that Kizu would be liquidated and Hyogo reorganized. The decisive measures were somewhat soothing to the global banking community. Credit-rating agencies like Moody's in the U.S. have been sharply critical of Japan's failure to address its deepening bank crisis. Declared Takemura: "The settlement of our big problem involving individual financial institutions is in sight. We can head toward stabilization of the financial system."

But the crisis is far from over. Japanese officials admit that the shadow of at least $400 billion in nonperforming loans falls over the banking system, and some experts put the exposure at twice that. All the over extended banks are living with the consequences of the same blunder: during the "bubble years," in the late 1980s, they lent huge sums to property developers who put up real estate with wildly inflated values as collateral. A sharp fall in property values bankrupted many of these developers and wiped out the banks' collateral.

Kizu and Hyogo joined a mounting casualty list: the government had already shut down two credit unions earlier this year, and just a month ago, Cosmos Credit Corp. closed after panicked depositors rushed the tellers. Seven of eight huge housing-loan companies are considered beyond salvage, with bad debts of $50 billion. Nonetheless, the Finance Ministry appears more resolute than in the past. It has promised to release later this month a detailed plan to bail out the banking system. Not a moment too soon.

--By Edward W. Desmond/Tokyo

[SIDEBAR]

TELLER, BEWARE

A huge U.S. bank merger will cost 12,000 jobs

Even in a summer of blockbuster mergers, the planned $10 billion union announced last week between U.S. banking giants Chemical and Chase Manhattan is a breathtaking deal. The behemoth, which will operate under the internationally better-known Chase Manhattan name, even though Chemical is larger, will hold nearly $300 billion in assets and eclipse its New York City neighbor Citicorp as the largest U.S. bank. And while the new Chase will rank only 21st among the world's largest banking companies, according to the American Banker, it will be the global leader in syndicating loans and will boast more assets under management--some $3 trillion in all--than any other bank.

"It's a powerhouse deal," says James McCormick, president of the First Manhattan Consulting Group. "The new bank will be very large, and by dint of expected savings, very profitable."

But to pare annual costs by $1.5 billion within the next three years, the merged bank will eliminate 12,000 jobs out of a worldwide total of 75,000 and close about 100 of 626 branches. Particularly worrisome to U.S. consumers is the possibility that the merged bank will jack up charges for everything from mortgage loans to bounced checks. In an effort to allay such fears, a bank spokesman vowed, "We will remain very competitive in an extremely competitive market." The merged bank, he added, would not close branches in low- to-moderate-income neighborhoods where customers would have to go more than three blocks to find an open branch.

But such assurances have failed to soothe consumers in an era when mergers have shrunk the number of U.S. commercial banks from 12,345 in 1990 to 10,450 last year. Major deals valued at some $30 billion have been unveiled so far in 1995. Mergers and the growing use of technology will cost as many as 450,000 out of 2.8 million banking jobs in industrial countries by the year 2000, according to the accounting firm Deloitte & Touche.

Some experts warn that megamergers could become a distraction for bank managers. Says David Brophy, an associate professor of finance at the University of Michigan business school: "Banks may be throw ing out the baby with the bathwater, focusing on the need to be globally competitive but forgetting the needs of the local community." For Chemical and Chase, however, bigger seemed nothing but better.