Post on 03-Apr-2018
7/28/2019 Banking in Japan
1/15
Sapienza Universit di Roma
International Banking
Lecture Twelve
Banking in Japan
Prof. G. Vento
7/28/2019 Banking in Japan
2/15
Agenda
Introduction to Banking in the United States
Structure of the Banking and Financial System in the
US
Key issues of US Banking Industry
Banking Regulation in the US
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
3/15
Introduction to Banking in Japan
Japan has a bank-based financial system Banking system has traditionally played a more
important role than the stock market
Wide array of different types of banks
The largest public bank is the Postal Savings Bank
Major financial crisis in 1997-98
Wide range of reforms during the 90s.
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
4/15
Structure of Japanese Banking System
The Japanese bankingsystem has experienced
difficult times in recent years
as a consequence of the
downturn in the domesticeconomy.
Property prices / bad debts
generated the crisis in 1997
98. Both public and private
financial institutions
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
5/15
Bank Structure in Japan
Keiretsu system
A Keiretsu is a group of companieswith cross-shareholdings and shareddirectorships which normally includea bank, trust company, insurance firmand a major industrial concern (i.e.cars, steel)
The bank supplies services to theother keiretsu members, includingloans
The Ministry of Finance (MoF) was
the key regulator through threebureaux: Banking, Securities andInternational Finance
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
6/15
Bank Regulation in Japan
MoFs responsibilities included all aspects of financial
institution supervision: examination of financialfirms, control of interest rates and products,supervision of the deposit protection scheme, settingthe rules on activities to be undertaken by financial
firms Bank of Japan was responsible for the
implementation of monetary policy, but under theinfluence of MoF
High protected market
Japanese companies largely dependant on banks
loans
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
7/15
Japans Big Bang (1996)
1989: crash of Japan stock market
Big Bang based on:
- end of functional segmentation; integration ofbanking, insurance & securities; liberalisation offinancial products and prices; no restriction to
short/long-term operations; commission liberalised;disclosure
- restoring financial stability through FinancialSupervisory Agency and Financial Reconstruction
Commission, merged in 2001 in the Financial ServicesAgency
- more transparent rules
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
8/15
Private deposit-taking institutions
City banks. The city banks are the largest banks inthe Japanese banking system and account for over
50% of total banking sector assets.
They are commercial banks that offer a full range ofbanking services.
Regional banks. Focused on retail financial services
and SMEs.
The majority of regional banks are publicly quoted
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
9/15
Private deposit-taking institutions
Trust banks and long-term credit banks.
Trust banks perform commercial banking activity
but their main function is asset management for
retail and other customers. Japanese householdsplace funds to these banks, which they invest on
clients behalf.
Long-term credit banks provide medium- and long-
term finance to the corporate sector. Cooperative banks. They play a major role in the
Japanese banking system.
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
10/15
Private non-deposit-taking institutions and public
financial institutions
Private non-deposit-taking institutions. They include a widevariety of securities, insurance and other firms.
public financial institutions. They perform a significant role in
financial system.
Post Office has over 24,000 branches. Japans postal savingsystem is the worlds largest financial institutions in terms of
deposits.
Development banks. They direct lend to certain sectors.
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
11/15
Balance sheet features and performance
Between 1996 and 2005 bank lending portfolios havedeclined by around 30% reflecting the lack of demand and
the increasing number of bad loans that had to be written
off.
The decline in lending and the increase in liquid assets is an
indication of the weak state of the domestic economy.
Also deposit decreased.
ROE values are very low by international standards, mostlybecause bad loans
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
12/15
Banking crisis in the 90s in Japan
Excessive lending (portfolio concentration).
Negative impact of asset price deflation
Policy failure to contain problem
April 2013
7/28/2019 Banking in Japan
13/15
Banking industry in Japan: Recent trends
According to the latest estimates, Japan recorded a sharp
expansion in GDP in the fourth quarter (3.8 per cent on an annual
basis, against a contraction of 0.6 per cent in the third quarter),
thanks mainly to the robust increase of 22 per cent in exports.
Private consumption performed well again, growing by 2.8 per
cent thanks partly to a series of incentives for purchases ofdurable goods. Non-residential private investment returned to
growth after a year and a half, expanding by 3.8 per cent, while
residential investment declined sharply again, contracting by 12.5
per cent. The latest cyclical indicators offer contradictory signals regarding
the strength of the current recovery.
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
14/15
Banking industry in Japan: Recent trends
The deflationary trend shows no sign of receding. The rate of decline in
consumer prices moderated from 1.7 per cent in December to 1.1 percent in February, but excluding food and energy prices it remained
basically unchanged at 1.1 per cent.
According to the forecasts of the private analysts surveyed by
Consensus Economics, deflation will continue in 2010 at an averageannual rate of 1.1 per cent. The Bank of Japan has held its monetary
policy reference rate unchanged at 0.1 per cent.
In order to foster a fall in long-term interest rates, in mid-March it
decided to double to 20 trillion (about 4 per cent of GDP) the amount
of liquidity that will be provided to the market by means of three-month guaranteed loans under the facility introduced in December.
April 2013 Internaional Banking - Prof. G. Vento
7/28/2019 Banking in Japan
15/15
BANKING IN UK
Next Lecture:
April 2013 Internaional Banking - Prof. G. Vento