Banking in Japan

Presented by
Group 7

• Sabiha Farzana Moonmoon 16 089

• Tahmina Akhter 16 083
• K. M. Wasiuzzman 16 005
• Nandita Saha 16 060
• Sushmita Saha 16 032
 Background

Highly segmented financial system

Strong regulatory control exerted by the Ministry of Finance
Backed by the Bank of Japan
Domestic, foreign, short and long term financial transitions
were kept separate
Interest rates regulated
Financial firms organized along functional lines
High degree of functional segmentation
Keiretsu system
 MOF Bureau

Key regulator through three MOF bureaux:

Banking Securities

International
Finance
Responsibilities of MOF:

All aspects of financial institutions supervision

Examination of financial firms
Control of interest rates and products offered by the firm
Supervision of the deposit protection scheme
Setting the rules on activities to be undertaken by financial
firms
Used regulatory guidance
 The Bank of Japan

• Responsible for implementation of monetary policy

• Influenced by MOF officials through its membership on
bank’s policy board
• Acted as banker for commercial banks and government
• Regulated by the inter-bank market
• Consulted about regulatory issues
 Problems arise

• Functional segmentation and restrictions on international capital

flows resulted in an excessive dependence on the banking sector
compared to other major industrialized countries

• In 1998, 60% 0f domestic corporate finance in Japan consisted

of loans, compared to just over 10% in the USA

• Capital markets were underdeveloped

 Problems arise (continued…)

• Participation by foreign financial firms were kept out

• Token gestures were made to avoid criticism from the world

community

• In 1997, there were 94 foreign financial firms, compared to

290 in New York, 533 in London and 560 in Frankfurt

• Japan’s stock market was crashed in late 1989

 Japan’s Big-Bang
1996
 Objectives:
1. Financial structure was to be restricted putting on end to
functional segmentation
2. Restore financial stability, the financial supervisory agency and
Financial Reconstruction Commission established. BJ was
granted independence

 The package of reforms is based on principles:

FREE FAIR GLOBAL

 Japan’s Big-Bang 1996
(continued…)
1. Free
Integration of the banking, securities and insurance markets
was encouraged

Financial products and prices were to be liberalized

Rules which prohibited banks from jointly engaging in short

& long term operations were to be abolished

Fees & commission; especially on the stock market would be

licensed
 Japan’s Big-Bang 1996
(continued…)
2. Fair
A transparent, fair financial markets was to be created
through the complete disclosure of information of all levels,
including government

Investors were to be encouraged to take responsibilities for

their actions

New laws of investor protection were to be introduced

 Japan’s Big-Bang 1996
(continued…)
3. Global

• Tokyo was to become an international financial centre,

raising Japan’s international profit

• Accounting, legal, supervisory and tax procedures would be

changed to meet global standards set by international
organizations such as Basel committee & the International
organization of securities commissions.
 Top Japanese Banks(in 2003)
Bank Tier 1 Capital ROA(%)

Mizuho Financial group 29092 -1.74

Sumitomo Mitsui 27099 - 0.58

Financial group 26039 - 0.36

Mitsubishi Tokyo

Financial group 21310 - 0.80

UFJ holding

Norinchukin Bank 12695 0.17

 The reforms of regulatory system
• The Bank of Japan act 1998gave the bank a large
degree of autonomy.
• The power of finance minister to issue directives
has been revoked.
• Together with the FSA , the bank of japan
conducts bank examinations to maintain price
stability.
• The MOF had its responsibilities sharply
curtailed.
• The finance minister has the right to approve
the banks budget.
 Japan Financial Service Agency
(JFSA)
• Formed in 2001 through a merger of the FRC
and FSA.
• Reports to the prime minister office.
• Formulates the policy and regulates the financial
sectors.
• Establishing creditability is a major challenge for
both the bank of Japan and FSA.
 Deposit Insurance

In Japan, the Deposit Insurance Commission

was established in 1971.

The Deposit Insurance Commission (DIC)

reports to the Financial Services Authority.
 Creation of the DIC

• Levies on banks’ deposits fund the DIC.

• ¥17 trillion was also injected into the fund to

assist banks for 100% deposit insurance
coverage.
 Major amendments

1. The Deposit Insurance Act was amended in

response to the large number of bank failures
in 1998.

2. Temporary changes in the deposit insurance

scheme were designed to restore financial
stability.
 Power of the DIC

• The DIC can draw on a special fund for banks

if failure is threatening overall financial
stability.

• A Conference for Financial Crises identifies

the banks with a systemic risk.
Temporary measures taken to restore
financial stability

1. Each depositor of a failed bank is paid a

maximum of ¥10 million (plus interest) until
March 2002.

2. In September 2002, “100% guarantee for all

liquid deposits until April 2005” was
announced by Japan’s FSA.
Thank You