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
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