Systemically Important Banks Face Tighter Capital Requirements in Japan
TOKYO, JAPAN - Japan has implemented stricter capital requirements for systemically important banks since 2016 to strengthen financial stability. These measures aim to ensure that banks maintain sufficient capital adequacy ratios to withstand potential risks and shocks.
Capital Adequacy Ratios
- Systemically important banks (G-SIBs) are required to maintain a minimum capital adequacy ratio of 3.5%.
- Smaller banks have been given a softer target of 0.5 to 1.5%.
- Domestic banks must maintain a minimum capital adequacy ratio of at least 4%.
Basel Framework’s Total Loss-Absorbing Capacity Standards
Global systemically important banks (G-SIBs) must also adhere to the Basel Framework’s Total Loss-Absorbing Capacity standards.
Early Correction Measures
Regulators in Japan take a strict approach when enforcing capital standards. Banks that fail to meet required levels may be subject to:
- “Early correction measures,” including business improvement orders or suspension/discontinuation of banking services.
- Foreign bank branches operating in Japan are not subject to these standards and requirements.
Rules Governing Customer Relationships
Banks in Japan must adhere to strict rules governing their relationships with customers and other third parties, including:
- Providing detailed information to customers about deposit terms
- Ensuring proper management of customer information and compliance with personal data protection regulations
- Taking measures to ensure proper performance when outsourcing certain functions to third-party providers
Large Exposure Restrictions
The Banking Act in Japan prohibits banks from extending credit to a specific company or person in excess of a certain proportion of their own capital.
Prohibited Acts
Banks in Japan are prohibited from engaging in various unfair practices, including:
- Abusing dominant bargaining positions
- Making false statements to customers
- Providing conclusive judgments regarding uncertain matters
- Engaging in bundled sales practices that unfairly favor the bank
- Failing to inform customers of material facts related to a transaction
These prohibited acts aim to prevent banks from taking advantage of their dominant positions and promote fair and transparent banking practices.
Conflict of Interest Management
Banks in Japan must establish systems to ensure they do not prioritize their own interests over those of their customers. This includes developing conflict of interest management systems to identify and mitigate potential conflicts between the bank’s interests and those of its customers.
By implementing these stricter capital requirements and prohibited acts, Japan is promoting financial stability and protecting the interests of its citizens.