Atkinson, David, David Richards, and Tomishi Ishida, “Bank Cost Cutting: No Better Reason to Sell,” Goldman Sachs Investment Research Report on Japanese Banks, February 1999.
Kuwayama, Patricia Hagan, “Postal Banking in the United States and Japan: A Comparative Analysis,” Bank of Japan, Institute for Monetary and Economic Studies, Discussion Paper No. 99-E-17, June 1999.
Prepared by James Morsink (ext. 37875).
Also starting in March 1999, most banks began to include loans to bankrupt or potentially bankrupt borrowers on which interest was not yet overdue.
Banks were allowed to adopt the deferred tax accounting method for their unconsolidated accounts for their FY98 financial statements (this method was already used for consolidated accounts). The adoption of this method increased parent banks’ equity capital (this year only) by the amount of deferred tax receivables that they carried. There was no effect on capital adequacy ratios, because these were already calculated on a consolidated basis.
A bridge bank is a bank under state administration that is expected to be sold back to the private sector.
In addition, during FY98 banks raised about ¥2.8 trillion in Tier-1 capital from private sources, mostly related companies: about ¥1.4 trillion in common shares and about the same amount in higher yielding preferred securities.
For example, Sanwa Bank as a whole reportedly spends less on information technology than the Tokyo office of Goldman Sachs.
Following hearings conducted at end-June, the FSA announced that major banks were implementing their restructuring plans as scheduled.
For details of the PCA framework, see the 1998 Japan Selected Issues paper (IMF Staff Country Report No. 98/113).
Hitherto, nonbanks were allowed to use funds raised through bonds for capital investment, but had to raise loan money through bank borrowing or equity financing. The right to issue bonds to raise loan money will be limited to nonbanks capitalized at over ¥1 billion, and they will have to meet the same standards of bad loan disclosure as banks. This change is expected to benefit large nonbanks engaged in mortgage lending, consumer lending, and leasing.
For background, see Chapter V on Financial Sector Reforms in the 1998 Selected Issues paper (IMF Staff Country Report No. 98/113).
Improved supervision is especially important in light of the Big Bang financial reforms that expand banks’ range of activities.
The recent tax change allowing banks deduct debt forgiveness did not address the deductibility of provisions. Currently, provisions are automatically deductible only under certain narrow circumstances; otherwise, tax deductibility depends on specific rulings by the tax authorities.
One possibility would be to restructure the Postal Savings System as a “narrow bank,” whose services are priced to fully reflect costs and risks incurred.