JFSA and BOJ Announce Measures to Ease Impact of COVID-19 Outbreak
JFSA announced plans to now implement the finalized Basel III standards in Japan, in line with a similar recent announcement by BCBS due to the challenges posed by COVID-19 outbreak. JFSA also decided not to implement the net stable funding ratio in Japan for the next one year, from April 2020, in light of the implementation status in other countries. Among other announced measures, JFSA issued a statement that outlines measures on the capital treatment of guaranteed SME loans and relaxed capital buffer and liquidity coverage requirements. Also released was a statement providing flexibility to financial institutions in the submission of reports and notifications. In another statement, BOJ specified certain requirements to be met by the institutions that are subject to capital buffer and LCR requirements under the applicable laws and regulations.
JFSA announced that a networking group has been established to support further engagement among stakeholders and effective information-sharing on corporate disclosures, financial reporting, and audit, in light of the uncertainty resulting from the COVID-19 outbreak. It issued requests to financial institutions to continue to offer loans to companies and individuals and outlined possible relaxation of credit terms. With respect to the finalization of the Basel III standards, the implementation timeline for the revised market risk framework has also been extended by one year—that is, from January 2022 to January 2023. Earlier, JFSA had planned to publish the draft regulations for the national implementation by the end of June 2020; however, the publication date will now be reviewed through dialog with stakeholders.
Treatment of Prudential Standards
- A risk-weight of 0% can be applied to the following financing, based on the stipulations of Article 74, paragraph 2 of the Capital Adequacy Ratio Notice—SME loans guaranteed by Credit Guarantee Association based on Safety Nets for Financing Guarantee and those based on Guarantee Related to Emergencies.
- As referred in the document on buffer usability published by the BCBS on October 31, 2019, banks are being allowed to draw down on their regulatory capital buffers as necessary to absorb losses or maintain the provision of key financial services to the real economy.
- In line with the international agreement, it is acceptable to fall below the minimum requirement through the use of the pool of liquidity assets in times of stress. To increase resilience against a liquidity crisis, internationally active banks are urged to preserve adequate assets available to be used for times of stress.
Flexibility in Submission of Reports
- For the reports for which the submission deadline may be extended with legal approval, JFSA will deal with applications for extension quickly and appropriately on receipt.
- For reports and notifications for which the submission deadline is not legally fixed, if financial institutions are unable to prepare the documents, they may submit the documents as soon as possible after the circumstances causing the delay end. In such a scenario, the documents will be deemed to have been submitted without delay.
- For reports individually required under Article 24 of the Banking Act and other provisions of statutes, JFSA will provide submission flexibility while giving due consideration to the business situations of financial institutions affected by COVID-19 outbreak.
BOJ Statement on Confirmation of Standards for Criteria for Current Account Transactions
BOJ has set that financial institutions that are subject to capital buffer and LCR requirements under the applicable laws and regulations should satisfy certain requirements. These include the criteria for eligibility to hold current accounts at BOJ and to have access to its lending facilities, the criteria for selecting counterparties for the market operations of BOJ, and the conditions for eligible counterparties for the Complementary Lending Facility. Even if a financial institution does not satisfy the requirements prescribed in the laws and regulations, in cases where BOJ finds that there is a high probability that the institution will steadily improve toward meeting these requirements, the institution remains eligible for the operations. BOJ is confirming this application of eligible standards in view of the need for financial institutions to provide support for firms' funding conditions due to the growing impact of COVID-19 outbreak.
Keywords: Asia Pacific, Japan, Banking, COVID-19, Basel III, LCR, NSFR, Deadline Extension, Regulatory Capital, Reporting, Liquidity Risk, Credit Risk, JFSA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.