Featured Product

    IMF Publishes Reports on the 2018 Article IV Consultation with Japan

    November 27, 2018

    IMF published its staff report and selected issues report under the 2018 Article IV Consultation with Japan. Directors recognized the challenges facing the financial sector, especially from demographic pressures and low interest rates. They welcomed the progress made in implementing the 2017 FSAP recommendations, particularly the new more forward-looking supervisory framework. Directors highlighted the importance of enhancing risk management, financial oversight, and the macro-prudential framework.

    The staff report highlights that the Japanese Financial Services Agency (JFSA) is moving toward a new forward-looking and dynamic supervisory framework. Implementation of certain FSAP recommendations—particularly on macro-prudential policies and crisis management and resolution—is incomplete. The overall banking sector remains well-capitalized and liquid. Nonetheless, the amount of risks taken by some financial institutions have exceeded their capital levels. Market risks from a large decline in equity prices or a sharp rise in Japanese Government Bond (JGB) yields could lead to substantial losses for major banks and life insurers, while solvency concerns and higher risk taking due to demographic challenges and low interest rates are more severe for regional banks. The riskiness of credit allocation has increased significantly in recent years on the back of strong growth in lending to small enterprises and has exceeded the levels seen during the global financial crisis. Moreover, banks have increased substantially their holdings of investment trusts while long-term investors have stepped up their risk taking in foreign securities. Risks associated with these activities should be carefully monitored and assessed against financial institutions’ risk management capacity.

    The assessment suggests that the financial sector policies should be enhanced to contain the build-up of systemic risks in line with the 2017 FSAP recommendations. Capital requirements should be better tailored to an individual bank’s risk profiles, corporate governance could be further strengthened across the banking and insurance sectors, and an economic-value-based solvency regulation for the insurance sector should be introduced. The recent move of JFSA to include four more banks in its stress testing framework is welcome, while the macro-prudential framework should be further strengthened in line with FSAP recommendations.

    Additionally, the recent stress testing conducted by the Bank of Japan highlighted authorities’ concerns over the impact of low profitability on capital levels and increased lending to financially vulnerable firms. It is recommended that strengthening the crisis management and resolution framework would help reduce expectations of public support and facilitate the smooth exit of unviable financial entities. Also, JFSA recently expanded the total loss-absorbing capacity (TLAC) requirement to one domestic systemically-important bank; it could further facilitate financial institutions’ efforts to leverage fintech and should continue to strengthen crypto-asset oversight.

     

    Related Links

    Keywords: Asia Pacific, Japan, Banking, Insurance, Article IV, FSAP, Stress Testing, Macro-prudential Framework, JFSA, IMF

    Featured Experts
    Related Articles
    News

    APRA Revises Related Entities Standard for Banks

    APRA published a strengthened prudential standard APS 222 on associations with related entities, with the aim to mitigate contagion risk within banking groups.

    August 20, 2019 WebPage Regulatory News
    News

    FSB on Responses to Consultation on Wind-Down of Trading Portfolios

    FSB published responses received to the consultation on the solvent wind-down of the derivatives and trading book portfolio of a global systemically important bank (G-SIB).

    August 19, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Consultation on Resolvability Disclosures

    FSB published responses received to the consultation on disclosures for resolution planning and resolvability of banks.

    August 19, 2019 WebPage Regulatory News
    News

    HKMA Revises Implementation Schedule for Initial Margin Rules

    HKMA intends to adopt a revised implementation schedule for the margin requirements for non-centrally cleared derivatives.

    August 16, 2019 WebPage Regulatory News
    News

    HKMA Revises Guideline on Application of Banking Disclosure Rules

    HKMA issued a revised version of the Supervisory Policy Manual module CA-D-1 on guideline on the application of the Banking (Disclosure) Rules (BDR).

    August 16, 2019 WebPage Regulatory News
    News

    ECB Decision on Recognizing Reporting Member States Under AnaCredit

    ECB has finalized the Decision 2019/1348 (ECB/2019/20) that establishes procedure for recognizing non-euro area member states as reporting member states under the AnaCredit Regulation (EU 2016/867).

    August 16, 2019 WebPage Regulatory News
    News

    FASB Proposes to Extend CECL Standard Deadline for Certain Entities

    FASB proposed an Accounting Standards Update that would grant private companies, not-for-profit organizations, and certain small public companies additional time to implement FASB standards on current expected credit losses (CECL), leases, and hedging.

    August 15, 2019 WebPage Regulatory News
    News

    IASB Adds Phase Two of IBOR Reform to Its Work Plan

    IASB (or the Board) has added the second phase of its project focused on potential financial reporting implications linked to the interest rate benchmark reform—interbank offer rate (IBOR) reform—to its work plan.

    August 15, 2019 WebPage Regulatory News
    News

    FED Updates Draft Instructions for Proposed FR Y-14 Reporting Forms

    FED updated draft instructions for the monthly, quarterly, and annual capital assessments and stress testing reports, also known as forms FR Y-14M, FR Y-14Q, FR Y-14A, respectively.

    August 15, 2019 WebPage Regulatory News
    News

    FASB Proposes Taxonomy Changes Related to Topics 326, 815, and 842

    FASB is proposing taxonomy improvements for the proposed Accounting Standards Update on clarifying the interactions among topic 321 on investments in equity securities), topic 323 on investments under equity method and joint ventures), and topic 815 on derivatives and hedging.

    August 15, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3665