The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Japan: Banking system or welfare state?

For foreigners, Japan is a topsy-turvy land where economic theory stands on its head. Nowhere more so than in the banking sector, a gravity-defying edifice which appears to be propping up the entire economy. If you were to rebuild it, you wouldn't start from here. But it has a terrifying logic, eloquently defended by Japan's elite. And remember, they wouldn't be in this mess if the Basle committee had been tougher 10 years ago. Steven Irvine reports.

A dose of Merrill doctrine


"In Japan, I feel the fashion is to bash bankers. This is not a sound move in a modern society. It is a little bit hysterical," ponders Shin Nakahara, the corporate planning boss of Bank of Tokyo-Mitsubishi.

Contemplating the sheer scale of the bank rescue ahead of them - estimated needs $500 billion - Japanese bankers might feel like turning round and bashing the Basle Committee on Banking Supervision.

In Basle 10 years ago the British and Americans capitulated to the Japanese ministry of finance (MoF) on the issue of tier-two capital. The concession allowed banks to count, as tier-two capital reserves, up to 45% of their hidden assets - that is to say, unrealized gains on their equity portfolios.

This defeated the whole effort of the Basle Committee to harmonize banks' capital adequacy ratios (BIS ratios) in the Group of 10 industrial countries. The British and American regulators had gone to Basle intent on forcing Japanese banks to boost their equity capital from 4% of all assets to 8%. The concession won by the MoF meant a tier-one ratio of 4% could be balanced by unrealized stock market gains of 4%.


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree