• 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