Need of New Rules for Banks in Japan

Japan's finance minister and Japan's central bank's Governor are doing meeting and discussing the need of applying new rules for banks in Japan. The following content ( quote form) is taken from The New York Times which shows the reasons behind this issue.

Japanese banks, weakened by a financial crisis of their own in the late 1990s, were largely left behind in the push by Wall Street banks to create and deal in ever more complex securities. They stuck to more conservative investments, taking on lower risks and reaping lower returns than many of their Western counterparts.

As a result, Japanese lenders initially appeared to be shielded from problems related to sub prime mortgage lending. In September 2008, as credit markets seized up in the United States, Japanese officials widely referred to the crisis as “the fire on the other shore.” The economy minister at the time, Kaoru Yosano, compared the effects of the crisis on Japan to a bee sting.

Sub prime losses at all Japanese banks totaled 1.034 trillion yen, ($11 billion) at the end of September 2009, government figures show — a fraction of the losses racked up by their counterparts in the United States and Europe. Japan was spared the kind of financial upheaval experienced in the West, although the global downturn hit the Japanese economy hard as exports collapsed and the stock market dropped.


Analysts say new rules could be more onerous for Japanese banks, partly because they have long counted preferred securities, which combine characteristics of equity and debt, as part of their capital base. The ratings agency Standard & Poor’s warned in November that Japan’s lenders had some of the lowest capital ratios among major global banks.

There is little consensus in Japan over what shape a regulatory overhaul should take. Japanese banking rules are more lax, and regulators are far less powerful than their counterparts at the Securities and Exchange Commission in the United States.

“This is a good chance for Japan to rethink its approach to regulation,” said Tatsuo Uemura, a finance and law professor at Waseda University in Tokyo. “Japan should consider the pros and cons of America’s response, then come up with its own. It should not blindly follow the West.”  Link