International Finance Project Paper
Impacts and recent changes of Japanese Bank Regulation
Prof. John Luther Rogers
International Finance
Kiyoshi Tamura
Abstract
This paper discusses important policies in Japanese banking regulation under the global financial crisis, which brutally damaged the Japanese economy. For starter, the state of Japan's banking industry and an outline of Japan's banking regulations are produced. Secondly, explaining the impacts of the global financial crisis on the Japanese economy and Japanese banks. Finally, introducing various responses of the small-and-medium-sized enterprise (SME) financing support program and banking regulations against the global financial crisis such as adjustment of the public fund injection scheme, modification of capital adequacy regulation, and establishment of the new regulations to Facilitate Financing for SMEs.
Introduction
In the 1980s, Japanese financial institutions exposed their existence in Western financial markets. They also had close relationships with large Japanese corporations (connecting keiretsu; a Japanese word which, translated literally, means headless combine.
Figure 6
Figure 5
Figure 4It is the name given to a form of corporate structure in which a number of organizations link together, usually by taking small stakes in each other and usually as a result of having a close business relationship, often as suppliers to each other. ) and suffered from few bad debts (NPL; Non-performing Loans) because of the country's steady economic development, making them one of the top financial institutions in the world.
Increase of NPL ( Non-performing Loan)
However, in the 1990s, the financial condition of Japanese financial institutions stagnated rapidly due to an increase in bad debts brought on by an economic recession. For example, Figure 1 shows the changes in the balance of non-performing loans that Japanese banks held. At its peak at March 2001 (i.e., the end of FY 2001), at this stage the NPL volume exceeded ÃÂ¥40 trillion.
Figure 1
In 1997,