FS inancial ystemRReport · 123 45 678 9101112 Low risk 0 5 10 15 20 25 1234 5678 9101112 SMEs...

FFSSRRystem

inancial

eport

Vi l SVisual Summary

October 2012Bank of Japan

1. Examination of the external environmenti. Developments in the global financial system and overseas economies

ii. Domestic economy, financial conditions of firms and households, and fiscal conditions

2. Examination of financial intermediationi. Loan market conditions

ii. Major banks' overseas loans

iii. Regional financial institutions' efforts

Contents

3. Risks in the financial systemi. Macro risk indicators and the amount of risks at financial institutions

ii. Credit risk

iii. Market risk

4. Resilience of the financial systemi. Resilience against shocks in the economy and financial markets

ii. Resilience against funding liquidity risk

2

200

250Dec. 2003=100

Chart II-1-1: Government bond yields(10-year)1

Chart II-1-6: European banks' lending attitudes1Chart B2-1: Loans outstanding and nonperforming-loanratio in Spain1,2

Loans outstanding Nonperforming-loan ratio

010

20% pts

Improved

Large Medium- Small Microfirms sized firms firms firms7

89

%Italy

Spain

Developments in the global financial system and overseas economies: Europe

• In European countries facing serious fiscal situations, an adverse feedback loop among fiscal conditions, thefinancial system, and the real economy has materialized. In Greece, uncertainty persists regarding the achievement of fiscal consolidation and the continuation of financial support. The

prevailing concern is that capital injections into troubled banks and the local governments' request for financial support will furtherworsen fiscal conditions in Spain, keeping Spain's government bond yields at high levels.

In some peripheral countries, lending attitudes of banks have grown cautious. Banks' cautious lending attitudes, together with thefiscal austerity, have exerted downward pressure on the real economy.

25

30 %

1. Examination of the external environment

0

50

100

150

2003 05 07 09 11

OthersIndividuals (consumer credit, etc.)Individuals (housing loans)Firms (total excluding construction and real estate)Firms (real estate)Firms (construction)

CY

3

Note:1. The latest data are as of September 28, 2012.Sources: Bloomberg; BIS.

Notes: 1. Loans outstanding are those for Spanish residents.2. The latest data for the nonperforming-loan ratio are as of June 2012.

Sources: Bank of Spain, "Economic indicators," "Statistical bulletin"; ECB, "Residential property price index statistics."

Note: 1. Changes in banks' lending attitudes evaluated by firms in the euro area. Survey covers the period from October 2011 to March 2012.

Source: ECB, "Survey on the access to finance of SMEs in the euro area."

-60-50

-40-30-20

-100

Ger

man

yFr

ance

Ital

ySp

ain

Gre

ece

Irel

and

Ger

man

yFr

ance

Ital

ySp

ain

Gre

ece

Irel

and

Ger

man

yFr

ance

Ital

ySp

ain

Gre

ece

Irel

and

Ger

man

yFr

ance

Ital

ySp

ain

Gre

ece

Irel

and

Deteriorated

0123456

Jan. Jul. Jan. Jul.

Germany

Japan

United States

2011 12July July 0

5

10

15

20

03 04 05 06 07 08 09 10 11 12Real estateConstructionTotal loansHousing loans

CY 20

7150

%% Leverage ratio (lhs)2

tril. U.S. dollars

Chart II-1-9: Real GDP of emerging economies1 Chart II-1-10: Outstanding amount of external claims1

Chart II-1-13: Leverage ratio and expected income growth rate of U.S. households1,2By creditor By debtor

• In many emerging economies including China, economic growth has been slowing. European economies' stagnation has been exerting downward pressure on emerging economies through the trade channel in

addition to the earlier monetary tightening. While credit to emerging economies from banks and investors in countries other than in Europe has been firm, credit to emerging

economies from Europe has decreased. The effects of the European debt problem on emerging economies through the financialchannel also warrant attention.

• In the United States, although the burden on repayments on households has started to ease, it has continued toweigh on the economy.

Developments in the global financial system and overseas economies: The United States and emerging economies


15y/y % chg.

0

1

2

3

4

5

6

7

50

70

90

110

130

150

1980 85 90 95 2000 05 10 CY

Expected income growth rate (rhs)

Mar. Sep. Mar. Sep. Mar.-1

0

1

2

Japan United StatesEuro area United Kingdom, etc.Emerging economies Others

2010 11 12Mar. Sep. Mar. Sep. Mar.2010 11 12

4

Note: 1. The latest data are as of the April-June quarter of 2012.Source: Bloomberg.

Note: 1. Cumulative changes from end-calendar 2009. "United Kingdom, etc.," includes EU countries other than the euro area. Emerging economies comprise 20 countries including the BRICs and NIEs. The latest data are as of end-March 2012.

Source: BIS, "Consolidated banking statistics."

Notes: 1. The latest data are as of the April-June quarter of 2012.2. The leverage ratio is a ratio of debt outstanding to disposable

income. The expected income growth rate is based on a questionnaire on the next 12 months' expected income.

Sources: BEA, "National economic accounts"; FRB, "Flow of funds accounts of the United States"; Thomson Reuters.

-12-9-6-30369

1215

08 09 10 11 12

ChinaASEANNIEs

2008CY 08 09 10 11 12

RussiaIndiaBrazil

20

300 36 Repayments (lhs)Debt (rhs)

% %

Chart II-2-8: Households' debt servicing capacity1,2,3Chart II-2-4: Distributions of credit ratings1,2,3

Distributions of credit ratings Changes in distributionsLarge firms SMEs

• Firms' financial conditions have generally improved. However, some small and medium-sized firms havecontinued to face severe financial conditions. Credit ratings of small and medium-sized firms have become further polarized.

• Principal and interest repayments relative to income for households with housing loans remain generally large.


Domestic economy, financial conditions of firms and households, and fiscal conditions: Firms and households

3From fiscal 2009 to 2010From fiscal

% pts3

% pts

30

35Large firms

ratio of firms, %

250

260

270

280

290

20

24

28

32

2003 04 05 06 07 08 09 10 11 12

( )

CY

5

Notes: 1. The left chart is as of fiscal 2011.2. The middle and right charts are yearly changes from fiscal 2009 to fiscal 2011.3. "SMEs" stands for small and medium-sized enterprises.

Source: Teikoku Databank, "SPECIA."

Notes: 1. The ratios to disposable income. 4-quarter moving averages.2. Households with housing loans are counted.3. The latest data are as of the April-June quarter of 2012 for

repayments, and the January-March quarter of 2012 for debt.

Source: Ministry of Internal Affairs and Communications, "Family income and expenditure survey."

-3

-2

-1

0

1

2

1 2 3 4 5 6 7 8 9 10 11 12

2010 to 2011Sum of the changes

Low risk

ratings

-3

-2

-1

0

1

2

1 2 3 4 5 6 7 8 9 10 11 12

Low risk

ratings

0

5

10

15

20

25

30

1 2 3 4 5 6 7 8 9 10 11 12

SMEs

ratings

Low risk

468

10%

0

5ratio to nominal GDP, % pts

Increase in revenue;decrease in expenditure

Chart II-2-11: Primary balance1,2,3 Chart II-2-12: Decomposition of long-term interest ratesChart II-2-10: Ratios of gross general government debt to nominal GDP1,2,3

• In the public sector, government debt has accumulated, with a continuing fiscal deficit. Given prolonged low economic growth, growth in revenue has been weak and social security benefits have increased against the

backdrop of rapid aging of society. Despite an accumulation of government debt in Japan, government bond yields remain at low levels. An empirical analysis based

on certain assumptions implies that, although increased government debt is working as upward pressure on interest rates,demographic changes and an increase in net external assets are exerting downward pressure on the rates.


Domestic economy, financial conditions of firms and households, and fiscal conditions: Fiscal conditions

200

250ratio to nominal GDP, %

-8-6-4-2024

1990 92 94 96 98 2000 02 04 06 08 10Constant Fiscal conditionsForeign borrowing InflationLabor productivity Demographic changesResidual Long-term forward rate

CY-15

-10

-5

1991 93 95 97 99 2001 03 05 07 09Tax revenueOther revenuesOther expendituresSocial security expenditureSocial security revenuePrimary balance

FY

Decrease in revenue;increase in expenditure

6

Notes: 1. The general government consists of the central government, local governments, and social security funds.

2. Figures are estimates as of 2011 by the IMF.3. The country specifications are as follows.

ARG: Argentina, DEU: Germany, ESP: Spain, FIN: Finland, FRA: France, GRC: Greece, HUN: Hungary, IRL: Ireland, ITA: Italy, KOR: South Korea, MEX: Mexico, NOR: Norway, PRT: Portugal, RUS: Russia, SWE: Sweden, THA: Thailand, USA: United States of America.

Source: IMF, "World economic outlook."

Notes: 1. The ratios of revenues, expenditures, and the primary balance to nominal GDP are expressed as the change from the ratios as of fiscal 1991.

2. The data are for the central and local governments. 3. Social security expenditure comprises the following items: social

benefits other than social transfers in kind; social transfers in kind; and current transfers from the central and local governments to the social security funds.

Source: Cabinet Office, "National accounts."

Source: Ichiue, Hibiki and Yuhei Shimizu, "Determinants of Long-term Yields: A Panel Data Analysis of Major Countries and Decomposition of Yields of Japan and the US," Bank of Japan Working Paper, No. 2012-E-7, May 2012.

0

50

100

150

Japa

nG

RC ITA

PRT

IRL

USA

FRA

DEU

HU

NES

PN

OR

FIN

ARG

MEX

THA

SWE

KO

RRU

S

0.5

1.0

1.5y/y % chg.

4

6SMEs Large firms, etc.Individuals Local governmentsTotal

y/y % chg.

Chart III-3-4: Loans outstanding for business fixed investment1,2Chart III-3-2: Loans outstanding of financial institutions1,2

• Financial institutions' domestic loans outstanding, particularly for corporate loans, have increased. Behind theincrease in corporate loans lies greater demand especially for working capital and funds related to mergers andacquisitions.

• Nevertheless, borrowing demand for business fixed investment remains sluggish due to the ample cash flowamong firms. By industry, loans for business fixed investment have increased in the electric power as well as medical care and welfare

industries, while they have declined in many other industries.

2. Examination of financial intermediation

Loan market conditions

2007 08 09 10 11 12-2.5

-2.0

-1.5

-1.0

-0.5

0.0

ManufacturingConstructionMedical and welfare servicesOther nonmanufacturingElectricity, gas, heat supply, and waterTotal

CY-4

-2

0

2

2006 07 08 09 10 11 12CY

7

Notes: 1. Banks and shinkin banks are counted.2. The latest data are as of end-June 2012.

Source: BOJ, "Loans and bills discounted by sector."

Notes: 1. Banks and shinkin banks are counted.2. The latest data are as of end-June 2012.

Source: BOJ, "Loans and bills discounted by sector."

12

%60

%

Chart III-3-10: Syndicated loan amounts and share1,2,3 Chart III-3-11: Syndicated loan margins and default rates1,2,3

Chart III-3-5: Share in cross-border claims of Japan's banks1,2,3

Japan's banks European banks Amounts Share (after adjustmentby maturity)

120

140 M&AProject financing

bil. U.S. dollars

3.5Default rates

%

• Major banks have increased overseas loans with high profitability, and the share of their loans in the global loanmarket has therefore grown. In the market, the share of loans by European banks has declined as they have been reducing their assets, whereas that by

Japan's banks has increased since 2008.• These developments show that banks are increasing overseas loans, while they are relatively careful in choosing

overseas loan extension and setting loan conditions. Looking at overseas syndicated loans extended by Japan's banks by lending purpose, most of them are for working capital with

low risk, although some are for project financing with relatively high risk and return.


Major banks' overseas loans

6

7

8

9

10

11

07 08 09 10 11 12CY 2040

45

50

55

2007 08 09 10 11 12

8

Notes: 1. The share is based on the cross-border claims on banks, the public sector, and the nonbank private sector on an ultimate risk basis.

2. European banks comprise the banks in the euro area. 3. The latest data are as of end-March 2012.

Source: BIS, "Consolidated banking statistics."

Notes: 1. Loans extended from Japan's banks to foreign firms are counted.2. The latest data for the left chart are annualized as of the first half of

2012.3. The right chart depicts the ratio of the loan amounts multiplied by

maturity. The data are from January 2010 to June 2012.Source: Thomson Reuters, "DealScan."

Notes: 1. Loans extended from Japan's banks to foreign firms between January 2010 and June 2012 are counted.

2. Loan margins and the default rate are averages weighted by the transaction amount of each deal.

3. The data are from January 2010 to June 2012.Sources: Thomson Reuters, "DealScan"; Moody's; BOJ.

0

20

40

60

80

100

120

2005 06 07 08 09 10 11 12

Project financingBusiness fixed investmentTrade financingWorking capital

CY

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Working capital

Trade financing

Business fixed

investment

Project financing

M&A

Default ratesLoan margins

Chart III-3-13: Loan-to-deposit ratio (ratio of loans to individuals and SMEs to deposits)1

Chart IV-3-34: Regional banks' financial conditions and operating profit ROA from core business

End-March 2002 End-March 2012 Deposits, loans, and securities outstanding Operating profit ROA from core business

• In the nonmetropolitan areas facing the decreasing population and the aging of society, growth in loans to localfirms has been slow and the loan-to-deposit ratio (the ratio of the amount of deposits to the amounts outstanding ofloans for small and medium-sized firms and housing) has declined significantly.

• As the loan-to-deposit ratio has declined, regional financial institutions' core profitability has declined. In a simple calculation based on the assumption that financial institutions will respond passively to developments in the external

environment such as demographic changes, financial institutions' profitability could continue to decline in the medium to long term.

2. Examination of financial intermediationRegional financial institutions' efforts: Financial conditions of regional financial institutions

200

250

300tril. yen Forecast

0.6

0.8 Operating profit ROA from core businessRatio of credit costs to total assets

%

Forecast

9

(Reference) Assumptions used in the calculations for Chart IV-3-34

Liabilities and interest rates Assumptions

Liabilities Individual deposits Change in accordance with the future population by agegroup (decrease in the long run).

Other deposits Level at fiscal 2011.

Interest rates and non-interest income Level at fiscal 2011.

Credit costs The ratio of credit costs to total loans outstanding remains at the same level as the average credit cost ratio recorded from fiscal 2001 to fiscal 2011.

Assets Assumptions

Assets Loans to SMEs Decline by 1.6 percent per year, which is the average pace of decline recorded from fiscal 2001 to fiscal 2011.

Housing loans Change in accordance with the future population by age group (decrease in the long run).

Other loans Level at fiscal 2011.

Securities Adjusted by the net surplus between the deposit flow and the lending flow.

Note: 1. Regional banks and shinkin banks are counted.Source: BOJ.

Sources: Ministry of Internal Affairs and Communications, "National survey of family income and expenditure"; National Institute of Population and Social Security Research, "Population Projection for Japan"; BOJ.

Less than 40%40-50%50-60%60% or more

Loan-to-deposit ratio

0

50

100

150

00 05 10 15 20 25 30 35 40 45 50

DepositsLoansSecurities

FY 200.0

0.2

0.4

05 10 15 20 25 30 35 40 45 50FY 20

%

Chart III-3-14: Changes in loan interest rates, and number of lending banks per firm and loan interest rates for high-grade firms1,2,3,4

Chart III-3-15: Default rates by number of lending banks1

Changes in loan interest rates Number of lending banks Loan interest rates for high-for high-grade firms grade firms

Regional financial institutions' efforts: Regional financial institutions' lending attitudes• Regional financial institutions have boosted loans in metropolitan areas and neighboring prefectures. Such

lending attitudes have intensified competition in lending to existing firms that are top rated.

• Attention should be paid to the possibility that excessive lending competition will result in deterioration in profits on loans through a decline in loan interest rates and an increase in credit costs. At high-rated borrowing firms, the number of financial institutions extending loans to these firms has increased. Loan interest rates

tend to decline when these firms have a greater number of financial institutions extending loans. In addition, the default rates rise even at these firms as the number of financial institutions increases.

Close monitoring is important for financial institutions after loan disbursement. If the number of financial institutions that extend loans increases without such monitoring, the governance on firms' activity from the financial side might weaken.


High-grade firms

0.00

0.01

0.02

0.03

1 2 3 4 5 6 7

%

number of banks

-0.3

-0.2

-0.1

0.0

High grade Middlegrade

Low grade

% pts

5.0

5.1

5.2

5.3

5.4

2008 09 10 11

banks

FY1.5

1.6

1.7

1.8

1.9

1 2 3 4 5 6 7

%

number of banks

10

for high grade firms grade firms

Notes: 1. The high-grade firms are in the upper 25th percentile in credit rating, the low-grade firms are in the lower 25th percentile, and the middle-grade firms are in the other percentiles.

2. The left chart is yearly changes of loan interest rates from fiscal 2009 to fiscal 2011.3. The number of lending banks for high-grade firms in the middle chart is the average per firm.4. The right chart is the average from fiscal 2008 to fiscal 2011.

Sources: Teikoku Databank, "SPECIA"; BOJ.

Note: 1. Averages from fiscal 2008 to fiscal 2011. The high-grade firms are in the upper 25th percentile in credit rating.


3.0%Securing and training of personnel

Exploring new markets

Chart III-3-22: Management challenges faced by SMEs1 Chart III-3-25: SMEs' operating profit ROA by sales territory1

Chart B4-2: Ratio of SMEs without business successors1,2

Firms that do not have business successors

("need attention" and below)

Regional financial institutions' efforts: Finding potential business partners and supporting business succession

• Financial institutions have begun to strengthen the provision of information services with which small and medium-sized firms can find potential business partners in order to explore new markets. They have also started to support business succession of firms with elderly owners through, for example, mergers and acquisitions. Small and medium-sized firms have emphasized the need to strengthen their sales. For many small and medium-sized firms, their

small sales territory could have been one factor behind low profitability.

The share of firms without successors among total small and medium-sized firms increased to about 30 percent in fiscal 2010. Many of these firms are top rated in their sectors, enjoying high profitability and high credit ratings corresponding to normal in the borrower classification.


0.0

0.5

1.0

1.5

2.0

2.5

Sam

e m

unic

ipal

ities

Nea

rby

mun

icip

aliti

es

With

in th

e sa

me p

refe

ctur

es

Nea

rby

pref

ectu

res

Insi

de Ja

pan

Both

insi

de

and

outs

ide J

apan0 10 20 30 40 50 60 70 80

Exploring new marketsDeveloping new technology and products

Fostering business successorsAdvancing into new businessInvesting in internal facilities

Reconstructing businessReviewing organizational structure

Strengthening corporate brandsPromoting corporate tie-ups

Facilitating corporate financing

%

1. Sales 66.1%2. Planning and

marketing 40.5%3. Engineering and

research 33.9%

Insufficient personnel by area

11

Note: 1. The data are as of 2008. Multiple answers are included.Source: Tokyo Chamber of Commerce and Industry, "Surveys on

SMEs' management challenges."Note: 1. The latest data are as of fiscal 2010.Sources: Small and Medium Enterprise Agency, "Basic survey on

small and medium enterprises"; BOJ.

Notes: 1. SMEs with owners over 60 years old are counted.2. The data are as of fiscal 2010.

Sources: CRD; BOJ.

5%

28%

67%

Firms that have business successors

Firms that do not have business successors

("normal")

( need attention and below)

Chart B3-1: Customer networks of firms and financial institutions1,2

Chart B3-2: Relation between firms through transaction networks1,2,3

Distributions of the average Customer networks of firms and financial institutionsnumber of links

70

ratio of firms, %Under the assumption that the customer

networks of financial institutions were not usedUnder the assumption that the customer

networks of financial institutions were fully used

Firm seeking customers

Regional financial institutions' efforts: Financial institutions' customer networks• Financial institutions' customer networks are utilized in information services with which firms can find potential

business partners in order to explore new markets. Financial institutions could expand their networks by cooperating with each other regardless of their type of business or region, and further enhance the quality of their services. Financial institutions' customer networks are clearly large compared with other industries. The number of clients for them exceeds

that for many other industries, and the amount of financial transactions per client for them is considerable.

If financial institutions' customer networks are used efficiently, the process of finding business partners among firms would beshortened and the business networks of individual firms could expand.


1,000

strength of relationship with customers, mil. yen

R i l b k

12

Notes: 1. The "strength of relationship with customers" is the average amount of credit per customer. The "size of networks with customers" is the average number of customers per firm or financial institution. The size of circles indicates the average amount of credit per firm or financial institution.

2. Customers are business partners of sales and purchases for firms and borrowers for financial institutions. Major trading firms have more than 10,000 customers and capital of 1 billion yen or more.


Notes: 1. The average number of links in the left chart indicates the average number of the fewest links that a firm must go through to find a customer through business transactions.

2. The right chart is drawn by the BOJ. Circles in the right chart indicate firms. Black dots indicate firms that a firm must have business relationships with to find a customer through the fewest links.

3. Firms, banks, and shinkin banks located in one prefecture are counted.Source: Teikoku Databank, "SPECIA."

0

10

20

30

40

50

60

1 2 3 4 5 6 7

Under the assumption that the customer networks of financial institutions were fully usedUnder the assumption that the customer networks of financial institutions were not used

average number of links

Shortening of transaction links

：Links ：Fewest transaction links

Potential customerFewest transaction

links: 5Fewest transaction

links: 2

：Financial institution

0

1

10

100

,

100 1,000 10,000 100,000

Large firmsMedium-sized and small firms(Reference) Major trading firms

size of network with customers, numberof firms

Major banks

Regional banks

Shinkin banks

Chart IV-1-1: Total credit-to-GDP ratio1 Chart IV-1-4: Financial Cycle Indexes1,2

-0.5

0.0

0.5

1.0

1.5

-0.5

0.0

0.5

1.0

1.5

Macro risk indicators and the amount of risks at financial institutions: Macro risk indicators• In the examination of the financial system to ascertain financial imbalances, there is no indicator that warns of

financial imbalances stemming from bullish expectations. Due attention should be paid, however, to a further increase in the amount outstanding of JGBs held by financial institutions. Total credit from financial institutions to firms and households relative to GDP continues to hover around its long-term trend.

The Financial Cycle Indexes and the Financial Activity Index show no sign of instability in the financial system.

3. Risks in the financial system

120

130

140

150

160

170

180% Leading index Lagging index

13

Note: 1. The latest data are as of the January-March quarter of 2012.Sources: Cabinet Office, "National accounts"; Ministry of Finance, "Financial

statements statistics of corporations by industry, quarterly"; Ministry of Internal Affairs and Communications, "Consumer price index"; BOJ, "Flow of funds accounts," "Monetary base," "Money stock," "Tankan"; and etc.

Note: 1. Shaded areas indicate recession periods. The latest data are as of the April-June quarter of 2012.

Sources: Cabinet Office, "National accounts"; BOJ, "Flow of funds accounts."

Notes: 1. The left, middle, and right vertical lines indicate the collapse of Japan's asset price bubble, the default of Sanyo Securities, and the outbreak of the U.S. subprime problem, respectively.

2. The latest data are as of September 2012.Source: BOJ.

Chart IV-1-3: Heat map of Financial Activity Index1

-1.5

-1.0

1985 90 95 2000 05 10CY-1.5

-1.0

1985 90 95 2000 05 10CY

CY

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

DI of financial institutions' lending attitudes

Total credit to GDP ratio

Equity weighting in institutional investors' portfolios

Money multiplier (ratio of M2 to the monetary base)

Gross rent multiplier (ratio of land prices to rent)

Stock price

Spread between expected equity y ields and government bond y ields

Ratio of business investments to operating profits

Ratio of firms' CP outstanding to their liabilities

Households' debt-to-cash ratio

100

110

120

1980 85 90 95 2000 05 10

Total credit-to-GDP ratioLong-term trend

CY

【Financial Cycle Indexes】• A change in the leading index from a positive figure to a negative one

indicates that the financial system may become unstable in the near future.• The same movement in the lagging index indicates that the financial

system might have already become unstable.

【Heat map of Financial Activity Index】• Red (the darkest areas): overheating (a rise by more than one standard

deviation from the trend).• Blue (the second darkest areas): overcooling (a decline by more than

one standard deviation from the trend).• Green (the most lightly shaded areas): everything in between above.• White: the period without data.

Chart IV-3-1: Risks and Tier I capital1

Major banks Regional banks Shinkin banks

20

30tril. yen

Tier I capital

10

15tril. yen

Ti

Tier I capital

5

6

7tril. yen

Ti

Tier I capital

Macro risk indicators and the amount of risks at financial institutions: Amount of risks at financial institutions

• The amount of risks banks and shinkin banks bear as a whole has been decreasing relative to capital. However, the quality of bank loans has not improved substantially, despite the low credit costs.

While major banks are still exposed to a high degree of market risk associated with stockholdings, interest rate risk has been rising at regional banks and shinkin banks reflecting the increase in JGB investment.


14

Note: 1. Credit risk: unexpected loss with a 99 percent confidence level. Market risk associated with stockholdings: value-at-risk witha 99 percent confidence level and 1-year holding. Interest rate risk: 100 basis point value. Operational risk: 15 percent of gross profits.

Source: BOJ.

0

10

20

200304 05 06 07 08 09 10 11Credit risk Market risk associated with stockholdings Interest rate risk Operational risk

FY0

5

10

2003 04 05 06 07 08 09 10 11FY0

1

2

3

4

2003 04 05 06 07 08 09 10 11FY

Chart IV-3-4: Loans outstanding by borrower classification

Chart IV-3-2: Credit cost ratio and nonperforming-loan ratio

Credit cost ratio Nonperforming-loan ratio Major banks Regional banks Shinkin banks

12%3

Major banks

% 100

%

Credit risk: Credit costs at banks and shinkin banks• The credit cost ratios of banks and shinkin banks remain at low levels. The nonperforming-loan ratio has

generally remained at a low level, although that for shinkin banks has increased moderately.

• However, the quality of regional banks' loans has not improved substantially. The ratio of "normal" loans to total loans has increased moderately at regional banks, but has not yet recovered to the level

immediately before the Lehman shock.

The ratio of "normal" loans to total loans has been decreasing at shinkin banks.


15

Source: BOJ.

0

2

4

6

8

10

2000 01 02 03 04 05 06 07 08 09 10 11

Major banks

Regional banks

banks

FY

Shinkin

-1

0

1

2

2000 01 02 03 04 05 06 07 08 09 10 11

Major banks

Regional banks

banksShinkin

FY60

65

70

75

80

85

90

95

07 08 09 10 11"In danger of bankruptcy" and below"Special attention""Need attention""Normal"

FY 20 07 08 09 10 1120 07 08 09 10 1120

Source: BOJ.

Chart IV-3-8: Subrogation rate1,2,3Chart IV-3-5: Credit cost borne by financial institutions and CGCs1

Chart IV-3-6: Breakdown of amount outstanding of liabilities guaranteed by CGCs1

60

70

80

4

5

6tril. yen %

80

100%

Credit risk: Credit costs of the Credit Guarantee Corporations• The amount of subrogation borne by Credit Guarantee Corporations (CGCs) remains relatively high. The share of credit costs borne by CGCs has exceeded 70 percent. Moreover, due to the introduction of the Emergency

Guarantee Program, the share of full guarantees (100 percent guarantees) on banks' credit by CGCs is slightly less than 70 percent of total guarantees by CGCs.

• The subrogation ratio of 100 percent guarantees is higher than that of 80 percent guarantees. Attention should be paid to the possibility that, if firms with loan guarantees under the Emergency Guarantee Program fail to improve their business conditions, the associated costs will ultimately become a burden on the public sector.


3

4Guarantee rate: 100%Guarantee rate: 80%

%

16

Note: 1. Credit costs borne by financial institutions are the sum of write-offs, realized losses on bulk sales, and others. Credit costs borne by CGCs are the amount of subrogation.

Sources: Financial Services Agency; National Federation of Credit Guarantee Corporations.

Note: 1. The data are average amounts outstanding in fiscal 2011.

Source: Small and Medium Enterprise Agency, "Report on the amount of subrogation by financial institutions."

Notes: 1. The subrogation rate is a ratio of the amount of subrogation payment to the outstanding amount of guaranteed liabilities.

2. The amount of subrogation payment is the cumulative amount in fiscal 2011. The outstanding amount of guaranteed liabilities is the average amount in fiscal 2011.

3. Counted based on the regions in which financial institutions' head offices are located.

Source: Small and Medium Enterprise Agency, "Report on the amount of subrogation by financial institutions."

0

10

20

30

40

50

0

1

2

3

4

1998 2000 02 04 06 08 10Credit costs borne by financial institutions (lhs)Credit costs borne by CGCs (lhs)Percentage of publicly guaranteed outstanding (rhs)

FY 0

20

40

60

Total Major banks

Regional banks I

Regional banks II banks

Guarantee rate: 80% Guarantee rate: 100%

Shinkin0

1

2

3

Nat

iona

l ave

rage

Hok

kaid

o / T

ohok

u

Nor

ther

n K

anto

Sout

hern

Kan

to

Hok

urik

u

Kos

hine

tsu

Toka

i

Kin

ki

Chug

oku

Shik

oku

Kyu

shu

Chart IV-3-12: Residential land prices and working-age population

Chart IV-3-9: Subrogation ratio on housing loans Chart IV-3-10: Transition and distribution of LTV1,2

Transition Distribution

0.48Guaranteed debt (lhs)Subrogation ratio (rhs)

%tril. yen 2.5150timesMar. 2000 = 100

Credit risk: Housing loans• Credit costs arising from housing loans have been marginal so far. The level of housing guarantee corporations' subrogation ratio remains low. The collateral coverage of housing loans is secured to

a certain extent.

• However, residential land prices have been on a downtrend and the loan-to-value (LTV) ratio has continued to rise. Attention should thus be paid to the possibility that credit costs of financial institutions will increase, depending on developments in, for example, residential land prices.


30

40CY 2009CY 1999

ratio of households,%

50

60

50

60%

LTV (lhs)

mil. yen

17

Notes: 1. The LTV comprises the liabilities for purchase of houses and/or land divided by the prices of houses and residential land.

2. Two-or-more person households with housing loans are counted.

Sources: Ministry of Internal Affairs and Communications, "National survey of family income and expenditure"; BOJ.

Source: Zenkoku Hosho. Sources: Japan Real Estate Institute, "Urban land price index"; National Institute of Population and Social Security Research, "Population projections for Japan."

0.1

0.2

0.3

4

5

6

7

2007 08 09 10 11

Subrogation ratio (rhs)

FY1.0

1.5

2.0

0

50

100

55 70 85 00 15 30

Residential land prices (lhs)Ratio

CY19

Forecast

20

of working-age population to non-working age population (rhs)0

10

20

30

0 20 40 60 80 100LTV, %

0

10

20

30

40

20

30

40

50

1994 99 2004 09Liabilities for purchase of houses and/or land (rhs)Prices of houses and residential land (rhs)

CY

Chart IV-2-1: MFIVs of stock prices1 Chart IV-2-2: Risk reversals of stock prices1,2

45

60

75

90 %

Nikkei VI

VSTOXX

Risk reversals• Risk reversals indicate the

difference in implied volatilities between call and put options.

• The deeper the indicator moves into negative territory (put-over), the stronger the risk recognition grows of a decline in stock prices and the en's appreciation

MFIVs• MFIVs correspond to the

expectations of option market participants on the changes in asset prices (1 month ahead for stock prices and 3 months ahead for government bond prices and exchange rates). The larger the indicator

Market risk: Developments in financial markets• Market participants' uneasiness grew toward June 2012 in response to the heightening concern over the

situation in Europe but recently declined again, mainly due to market expectations toward the European authorities' policies, as was suggested by the model-free implied volatilities (MFIVs) and risk reversals of stock prices. Nonetheless, such market participants' risk recognition is highly correlated globally, and domestic stock prices remain susceptible to developments in U.S. and European stock markets.

• Meanwhile, the MFIV of the U.S. dollar/yen rate has been on a declining trend, albeit with some fluctuations. The 1-month dollar/yen risk reversal has remained stable and skewed slightly toward dollar calls (concern over the dollar's appreciation and the yen's depreciation) since the beginning of 2012.


-10

-5

0 %

Japan

Europe

18

Chart IV-2-16: Risk reversals of U.S. dollar/yen and euro/yen rates1

Chart IV-2-15: MFIVs of U.S. dollar/yen and euro/yen rates1

0

15

30

2007 08 09 10 11 12CY

VIXNote: 1. The latest data are as of

September 28, 2012.Source: Bloomberg.

Notes: 1. Nikkei 225 options for Japan; S&P 500 options for the United States; EURO STOXX 50 options for Europe.

2. The latest data are as of September 28, 2012.

Source: Bloomberg.

5

10

15

20

25

30

35

40

2007 08 09 10 11 12

%U.S. dollar/yenEuro/yen

CYNote: 1. The latest data are as of September 28, 2012.Source: Bloomberg.

-14

-12

-10

-8

-6

-4

-2

0

2

2007 08 09 10 11 12

%

U.S. dollar/yenEuro/yen

CY

Attention to the yen's depreciation

Attention to the yen's appreciation

Note: 1. The latest data are as of September 28, 2012.Source: Bloomberg.

and the yen's appreciation.The larger the indicator becomes, the stronger the risk recognition of price fluctuations grows.

-25

-20

-15

Jan.2010

July Jan.11

July Jan.12

July

United States

Attention to the decline in stock prices

Chart IV-2-5: Decomposition of JGB yield1,2,3,4 Chart IV-2-7: JGB yield curves1

2.0

2.5 OthersGlobal componentGovernment bond yield

%Notes: 1. Government bonds are 10-year

bonds.2. "Global component" is defined as 1.5

2.0 %Just before the Trust Fund Bureau shockJust before the VaR shockLatest

Market risk: Correlation between domestic and overseas markets 3. Risks in the financial system

• JGB yields fell to the 0.70-0.75 percent level for the first time since the VaR shock, correlating to a considerable degree with U.S., U.K., and German government bond yields and sharing the common component behind fluctuations in these government bond yields ("global component").

• On the other hand, a comparison of the current JGB yield curve with the curve at the time of the VaR shock shows that longer-term yields are relatively higher, primarily because investors, mainly major banks, are cautious about lengthening the duration of their securities portfolio. In addition, market participants' risk recognition, which is gauged by the MFIV of JGB prices and some other indicators of derivative transactions, does not show any expectations of upward fluctuations.

• However, attention should be paid to the possible upward pressure on government bond yields if the effects of some of the factors pulling down the "global component" wane. In addition, foreign investors' holdings of JGBs have been increasing, and careful monitoring is required regarding the possibility that the degree of foreign investors' confidence in fiscal sustainability in Japan will be more rapidly reflected in JGB yields.

19

Chart IV-2-8: MFIVs of government bond prices1,2 Chart IV-2-13: Share of JGB holdings by overseas investors1

-0.5

0.0

0.5

1.0

1.5

2000 01 02 03 04 05 06 07 08 09 10 11 12CY

pthe first principal component of U.S., U.K., and German government bond yields.

3. "Others" is the sum of the constant term and residuals from regression of JGB yields on the "global component."

4. The latest data are as of end-September 2012.

Source: Bloomberg.

0

2

4

6

8

10

12

14

16

2007 08 09 10 11 12

JGBs

U.S. Treasuries German government bonds

%

CY

0.0

0.5

1.0

1 2 3 4 5 6 7 8 9 10 15 20 30 years

Note: 1. The latest data are as of September 28, 2012. "Just before the VaR shock" is June 12, 2003, and "just before the Trust Fund Bureau shock" is October 2, 1998.

Source: Bloomberg.

Notes: 1. Options on JGB futures traded on the Tokyo Stock Exchange for JGBs; options on U.S. Treasury futures traded on the Chicago Board of Trade for the United States; options on Euro-Bund futures traded on Eurex for Germany.

2. The latest data are as of September28, 2012.

Source: Bloomberg.

0123456789

10

2000 01 02 03 04 05 06 07 08 09 10 11 12

%

CY

Note: 1. The latest data are as of end-June 2012.

Source: BOJ, "Flow of funds accounts."

Major banks Regional banks Shinkin banks

Chart IV-3-17: Domestic bondholdings1 Chart IV-3-18: Average remaining maturity and maturity mismatch1

3

4tril. yen

20

25%

120

140tril. yen

Major banks Regional banks Shinkin banks Major banks Regional banks Shinkin banks

Chart IV-3-16: Interest rate risk (100 bpv) associated with domestic bondholdings1

Market risk: Interest rate risk borne by financial institutions• The amount of interest rate risk borne by banks and shinkin banks has been increasing. Increases in interest rate risk are due to an increased amount of bond investment and a lengthened average remaining maturity of

the investment.

The average remaining maturity of domestic bond investment has remained at around 2.5 years at major banks, and has lengthened to around 4 years at regional banks, which invest large amounts in long-term bonds, and to about 4.5 years at shinkinbanks.


4

5years

20

0

1

2

3

2000 05 103 years or less (lhs) 3-5 years (lhs)5-10 years (lhs) Over 10 years (lhs)Ratio to Tier I capital (rhs)

FY 2000 05 100

5

10

15

2000 05 100

20

40

60

80

100

2000 05 10Corporate bonds Local government bonds JGBs

FY 2000 05 10 2000 05 10

Note: 1. The latest data are as of end-March 2012.Source: BOJ.



0

1

2

3

2000 05 10Mismatch Loans Bonds Debts

FY 2000 05 10 2000 05 10

Chart IV-3-21: Ratio of stockholdings to total assets1

Chart IV-3-22: Alternative investment1 Chart IV-3-23: Share of alternative investment and operating profit ROA from core business1,2,3Major banks Regional banks Shinkin banks

6j b k

% 6

ratio to total assets, % 5ratio to total assets , %

Market risk: Market risk associated with stockholdings and alternative investment at financial institutions• The pace of reduction in market risk associated with stockholdings has been slower than planned at banks and

shinkin banks.

• The amount outstanding of alternative investment has been decreasing at banks and shinkin banks since the Lehman shock. However, the amount outstanding of alternative investment is relatively high at shinkin banks, partly due to structured products that were bought in the past. The structured products could incur significant losses depending on market variations since the product design is complex and

market liquidity is low. It should be noted that financial institutions with lower profitability tend to hold a higher ratio of alternative investment.


21

Note: 1. On an acquisition or amortized price basis. Source: BOJ.

Note: 1. ABSs exclude RMBSs.Source: BOJ.

Notes: 1. Banks and shinkin banks are counted. 2. RMBSs are excluded from alternative investment.3. Operating profit ROA from core business is the 5-year

average. Numbers in parentheses are the number of financial institutions.

Source: BOJ.

0

1

2

3

4

5

2001 02 03 04 05 06 07 08 09 10 11

Major banks

Regional banks

shinkin banks

FY

Shinkin

0

1

2

3

4

5

6

200708 09 10 11Structured products Equity investment trustsHedge funds ABSsRatio to total assets

FY 200708 09 10 11 200708 09 10 112

3

4

Less than 0.3%

0.3-0.4% 0.4-0.5% 0.5% or more

(91)

(106)

(91)

(91)

operating profit ROA from core business

• Life insurance companies have substantially increased the amount outstanding of super-long-term JGBs.Consequently, the duration mismatch is narrowing, but remains to a noticeable extent. Life insurance companies take on the greatest amount of risk in the JGB market. The maturity of liabilities is longer than that of assets for life insurance companies. Thus, if interest rates rise, the value of assets

would increase at a faster rate than that of liabilities and the value of net assets would increase (the opposite in the case of banks). Given the duration mismatch, potential demand for investment in super-long-term JGBs is expected to be strong for the time being.

However, due to the effects of demographic changes, the maturity of life insurance companies' liabilities could shorten moderately.

Chart IV-4-4: Duration of assets and duration mismatch1

Chart B8-1: Interest rate risk by sector1Chart IV-4-2: JGB holdings and share of life insurance companies in the super-long-term JGB market1,2

JGB holdings by remaining maturity

Share in the super-long-term JGB market

120years years 12

years

Life insurancecompaniesSecurities

Market risk: Interest rate risk at life insurance companies


60 tril. yen 50 150 tril. yen %

22

Notes: 1. In the left chart, the nine major life insurance companies are counted.

2. In the right chart, members of the Life Insurance Association of Japan except for Japan Post Insurance are counted. The term composition of JGB holdings of the member companies noted above is assumed to be the same as those of the nine major life insurance companies. The figure for fiscal 2011 is the BOJ's estimate using changes in the nine major life insurance companies.

Sources: Japan Post Insurance; Ministry of Finance; Life Insurance Association of Japan.

Note: 1. The horizontal axis indicates JGB holdings. The vertical axis indicates the duration of the JGBs. The size of circles shows the amount of interest rate risk associated with JGB holdings. The data are as of end-March 2012.

Sources: Ministry of Finance; Japan Securities Dealers Association; published accounts of each entity; QSS Report <Bond>; BOJ.

Note: 1. The nine major life insurance companies are counted.

Sources: Published accounts of life insurance companies; National Institute of Population and Social Security Research, "Population projections for Japan"; Ministry of Internal Affairs and Communications, "Population cencus"; Japan Institute of Life Insurance, "Life insurance survey"; BOJ.

0

2

4

6

8

10

2005 06 07 08 09 10 11-10

-9-8-7-6-5-4-3-2-1

Mismatch (lhs)Duration of assets (rhs)

FY0

2

4

6

8

10

0 50 100 150 200 tril. yen

Life insurance companies

Mutual aid insurance and nonlife insurance companies

Other depository institutions

Banks and shinkinbanks

Central bankOverseas

Households

investment trusts

Public pensions

Financialinstitutions for agriculture, forestry, and fisheries

Corporatepensions

0

10

20

30

40

50

05 06 07 08 09 10 11

Over 10 years10 years or less

FY 200

10

20

30

40

0

50

100

05 06 07 08 09 10 11Others (lhs)Life insurance companies (lhs)Share of life insurance

FY 20

companies (rhs)

• From this Report, the macro stress testing includes the feedback loop between the financial system and the realeconomy. In the previous macro stress testing, only the effects of changes in external environments such as real economy, stock prices, and

interest rates on the financial sector were taken into account. As one of the major features of the macro stress testing in this Report, the effects of the changes in behavior of financial

institutions on the real economy are taken into account by using the Financial Macro-econometric Model (FMM) in which thefeedback loop between the financial system and the real economy are taken into account.

Chart A-1: Credit risk testing Chart A-3: Economic downturn scenario(assessment of resilience against macroeconomic shocks)

Macroeconomic sector

Unrealized gains/losses on bondholdings

Financial sector

Stock pricesUnrealized gains/losses on stockholdings

Resilience against shocks in the economy and financial markets: Framework of macro stress testing

4. Resilience of the financial system

Macroeconomic sector

Financial sector

Stock pricesUnrealized gains/losses on stockholdings

23

Banks' capital

Loan volume Nominal GDP

Credit costsOverseas credit costs

Loan interest rates

Net interestincome

Corporate profits

Exports

bondholdings

Householdexpenditures

stockholdings

Bond interest rates

Shock

Banks' capital

Nominal GDP

Credit costs

Loan interest rates

Net interestincome

Corporate profits

stockholdings

• Banks' capital bases as a whole would be able to avoid significant impairment, even if a significant economicdownturn similar to that observed after the Lehman shock occurs. It assumes that the domestic and overseas economic growth rates would be in negative territory, and stock prices (TOPIX) would

decline significantly from 854 points at the end of fiscal 2011 to 398 points at the end of fiscal 2012. Although the Tier I capital ratio of banks would decrease from 11.6 percent in fiscal 2011 to 10.9 percent in fiscal 2012, the ratio

would still exceed the regulatory level.• Attention should be paid to the possibility that the capital adequacy ratios will plunge further for banks whose

quality of loans is relatively low.

Chart V-1-6: Tier I capital ratios (economic downturn scenario)1

Chart V-1-8: Reductions in the Tier I capital ratio and "need attention" loan ratio1,2

16%

0 0changes in the Tier I capital ratio, % pts

Chart V-1-3: Overseas economies

Chart V-1-4: Domestic economy

Resilience against shocks in the economy and financial markets: Economic downturn scenario


real GDP, y/y % chg. nominal GDP, y/y % chg.

24

Sources: IMF, "World economic outlook"; Japan Center for Economic Research, "ESP forecasts"; Cabinet Office, "National accounts"; BOJ.

Note: 1. Major banks and regional banks are counted. The shaded area indicates the 10th-90th percentile range under the economic downturn scenario.

Source: BOJ.

Notes: 1. Regional banks are counted.2. The horizontal axis shows the share of "need

attention" loans in the amount outstanding of loans. The vertical axis shows the average of each bank's difference between the Tier I capital ratio under the economic downturn scenario and that under the baseline scenario as of end-March 2015.

Source: BOJ.

4

6

8

10

12

14

16

2007 08 09 10 11 12 13 14FY

Baseline scenarioEconomic downturn scenario

Simulation

0-10 10-20 20-30 30--1.5

-1.0

-0.5

0.0

"need attention" loan ratio, %

-2

0

2

4

6

8

2007 09 11 13

Baseline scenario

Economic downturn scenario

Simulation

real GDP, y/y % chg.

CY-5

-4

-3

-2

-1

0

1

2

3

2007 09 11 13FY

Simulation

, y y g

• Banks' capital bases as a whole would be able to avoid significant impairment, even if an upward shift ofdomestic interest rates for all maturities by 1 percentage point occurs. The profits and unrealized gains on securities holdings would act as buffers and absorb most capital losses on bondholdings due

to a rise in interest rates.• Nevertheless, if interest rates rise significantly by more than 1 percentage point, banks' capital could decline to a

noticeable extent and such effects will be amplified through an adverse feedback loop between the financialsystem and the real economy. If interest rates rise by 2 percentage points, capital losses on bondholdings would exceed the buffers. Furthermore, this induces

banks to tighten their lending attitudes to restore their capital adequacy ratios.

Chart V-1-12: Effects of a rise in interest rates on capital losses on bondholdings and the Tier I capital ratio1

Chart V-1-15: Tier I capital ratios, credit cost ratios, loans outstanding, and nominal GDP

Tier I capital ratios Credit cost ratios Loans outstanding Nominal GDP

Resilience against shocks in the economy and financial markets: Upward shift scenarios of interest rates


25

Note: 1. Changes indicate the Tier I capital ratio at end-March 2013 minus that at the base point (end-March 2012). For the estimate of the Tier I capital ratio, profits, capital gains on securities holdings, and tax effects are taken into account.

Source: BOJ.

Sources: Japan Center for Economic Research, "ESP forecasts"; BOJ.

p g

10.0

10.5

11.0

11.5

12.0

2011 12 13 14Baseline scenario Parallel shift scenario (1 % pt) Parallel shift scenario (2 % pts)

Simulation

%

FY0.0

0.2

0.4

0.6

0.8

1.0

2011 12 13 14

%

Simulation

FY-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2011 12 13 14

y/y % chg.

Simulation

FY-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2011 12 13 14

y/y % chg.

Simulation

FY

Major banks

Regional banks

Upward shift1 % pt 2 % pts 3 % pts

－ 3.7 7.0 10.3

12.6 12.6 12.1 11.4

Changes (% pts) － 0.0 -0.5 -1.2

Mar. 2012(base point)

Capital losses on bondholdings (tril. yen)

Tier I capital ratio (%)

Upward shift1 % pt 2 % pts 3 % pts

－ 3.0 5.6 8.1

10.0 9.9 9.0 8.0

Changes (% pts) － -0.1 -1.0 -2.0

Capital losses on bondholdings (tril. yen)

Tier I capital ratio (%)

Mar. 2012(base point)

• Even if banks become unable to raise funds from some markets, they would generally hold a sufficient amount offunding liquidity both in the domestic and foreign currencies. Even under an assumption of a shock in which market funding in yen comes to a complete stop for 3 months and 10 percent of

deposits are drained out of those whose term until the renewal of the deposit rate is 3 months or less, all banks would havesufficient liquid assets necessary for funding. Furthermore, under an assumption that one of the major sources of foreign currencyfunding becomes dysfunctional for 1 month, Japan's banks would still have an adequate amount of foreign currency liquiditybuffers to cover funding shortages.

• However, banks could require additional funding sources under a particularly severe situation in which a numberof measures for foreign currency funding become inoperative simultaneously. Under an assumption that all of the major sources of foreign currency funding markets become dysfunctional for 1 month, funding

shortages would amount to almost the same level as the current foreign currency liquidity buffers.

Chart V-2-1: Stress testing against liquidity risk i f di 1 2 3

Chart V-2-2: Stress testing against foreign currency li idit i k1 2 3

Resilience against funding liquidity risk


26

in yen funding1,2,3 liquidity risk1,2,3

Notes: 1. Major banks and regional banks are counted.2. The duration of funding shortages in each market is 1 month.3. Foreign currency liquidity buffers include foreign currency-

denominated securities (excluding held-to-maturity securities and securities used as collateral in repo transactions) and foreign currency deposits.

Sources: Published accounts of U.S. MMFs; BOJ, "Regular derivatives market statistics in Japan."

0

1

2

3

4

5

6

7

8

9

05 06 07 08 09 10 11

Bottom 20-30thBottom 10-20thBottom 0-10th

liquid asset ratios, times

FY 20

percentile

0

10

20

30

40

0-1 1-2 2-3 3-5

As of end-Mar. 2012As of end-Sep. 2011

liquid asset ratios, times

number of banks

0

1

2

3

4

FX swaps Repos CDs and CP Simultaneous shock

As of end-Mar. 2012

As of end-Sep. 2011

liquidity buffer / funding shortages, times

Notes: 1. Major banks (excluding trust banks) and regional banks are counted.

2. Liquid asset ratio = (current accounts at the BOJ + cash + government bonds) / (net market funding maturing within 3 months). The latest data for the left chart are as of end-March 2012.

3. The right chart indicates distributions of liquidity asset ratios under the assumption that the deposit runoff occurred at end-March 2012.

Source: BOJ.

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