This document provides an overview of the Japanese banking system. It discusses the main features of Japanese banking including the main bank system where companies are closely associated with banks through long-term relationships. It also discusses the banking crisis in the late 1990s and early 2000s when non-performing loans became a major problem for Japanese banks. The regulatory system is also summarized, including the role of the Financial Services Agency as the primary banking regulator.

1. Banking in Japan

2. Japanese Main Banking
• Japanese banking characterized by long term
relationship described as Main Banking.
• Companies in Keiretsu get financing from the bank
and the bank owns much of the stock of member
companies.
• Virtually all companies had a main bank which
closely monitored borrowers for long periods.

3. Illustration of bubble economy in Japan

4. M
ar
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
-9
8
Ju
l-9
No 8
v-
9
M 8
ar
-9
9
Ju
l-9
No 9
v-
9
M 9
ar
-0
0
Ju
l-0
No 0
v-
0
M 0
ar
-0
1
Ju
l-0
No 1
v-
0
M 1
ar
-0
2
Ju
NPL's as a share of Loans: Japan
l-0
No 2
v-
0
M 2
ar
-0
3
Ju
l-0
No 3
v-
0
M 3
ar
-0
4
Rising problem of non-performing loans

5. Types of Japanese Banking System
1. City Banks: Large, national banks
A. Keiretsu Banks – Associated with large industrial groups
(Fuji, Mitsubishi, Sumitomo etc.)
B. Secondary Banks - (Takugin, Sakura. Tokai..)
– Regional Banks: Local Banks for small towns
– Long Term Banks – (NCB, IBJ, LTCB) Issue 5 year
debentures and finance in industrial projects
– Trust Banks – Take only large deposits (Mitsui,
Mitsubishi, Yasuda…
– Credit Co-operatives: Small banks that specializes in
housing and agricultural lending.
– Postal Savings Bank – Post office has a savings bank
which directly finances Japanese Government Banks.

6. Table 4: Banking Groups and Consolidated Assets
(Billions of yen)
New Groups Major Subsidiary Banks Former Banks Consolidated Assets
March 2003
1. Mizuho Financial Group Mizuho Bank, Mizuho Industrial Bank of Japan, End
134,033
(a)
(MHFG) Corporate Bank, Mizuho Daiichi Kangyo, Fuji,
(Established in January 2003) Trust & Bankig Yasuda Trust Banks
2. Sumitomo Mitsui Financial Sumitomo Mitsui Sumitomo Bank, Sakura 102,395
Group (SMFG) Banking Corporation Bank
(Established in December 2002) (SMBC)
3. Mitsubishi Tokyo Financial Bank of Bank of 96,532
Group (MTFG) Tokyo-Mitsubishi (BTM), Tokyo-Mitsubishi (BTM),
(Established in April 2001) Mitsubishi Trust & Mitsubishi Trust Bank,
Banking Corporation Nippon Trust Bank
4. UFJ Holdings UFJ Bank, UFJ Trust Sanwa Bank, Tokai Bank, 80,207
(Established in April 2001) Bank Toyo Trust & Banking
5. Resona Holdings Resona, Saitama Resona, Asahi Bank, Daiwa Bank 42,892
Kinki Osaka, Nara Banks,
(Established in December 2001) Resona Trust & Banking
Source: Individual groups’ website.

7. Public Financial
Institutions

8. Development Bank of Japan
• a Japanese corporation incorporated on 1 October 2008 under the
Development Bank of Japan Inc. Law
• According to its corporate philosophy of "applying financial expertise to
design the future," the new DBJ Mission is "to build customer trust and
realize an affluent society by problem-solving through creative financial
activities
• Based on the New DBJ Law, the Bank will provide integrated
investment and loan services to domestic and international clients.
• Total Asset : 14.0174 Trillion Yen (or 153.88 Billion USD)
Lending Balance : 12.0266 Trillion Yen (or 132.03 Billion USD)
Capital Ratio (BIS) : 18.69%
[Exchange Rate: 1 USD vs 91.09 Yen (on 18 September 2008)]

9. Japan Bank for International Cooperation
(JBIC )
• JBIC is currently the international wing of Japan
Finance Corporation (JFC)
• The bank is wholly owned by the Japanese
government, and its budget and operations are
regulated by the JBIC law. It is headquartered in Tokyo
and operates in 18 countries with 21 offices.
• The main purpose of the institution is to promote
economic cooperation between Japan and oversea
countries, by providing resources to foreign
investments and by fostering international commerce.
It also has a major role in promoting Japanese exports
and imports, and the country's activities overseas.

10. • The new JBIC performs the following three functions
to contribute to sound development of the
international economy, including Japan
1. Promote overseas development of strategically
important natural resources
2. Support Japanese industry efforts to develop
international business operations
3. Respond to financial disorder in the international
economy

11. National Life Finance Corporation
 was a governmental institution of Japan , which
provided business loans to small enterprises that have
difficulty obtaining loans from private financial institutions.
 On October 1, 2008, NLFC was dissolved and merged
into Japan Finance Corporation(JFC)
 Established: June 1, 1949
Branch Offices: 152
Capital:(100% funded by the government) ¥369 billion

12. Interbank Payment Systems

13. There are four major interbank payment systems in
Japan:
1. Bill and cheque clearing systems(BCCSs);
2. The Zengin Data Telecommunication System
(Zengin System);
3. The Foreign Exchange Yen Clearing System
(FXYCS); and
4. The BOJ-NET Funds Transfer System

14. In January 2001, the Zengin System
introduced a set of new risk management
measures to accommodate the Bank of
Japan’s introduction of a new RTGS
system. Under the new scheme, the TBA
acts as the central counterparty (CCP), and
the obligations between participants are
replaced with those between participants
and the TBA.

16. Bills and cheques are cleared in the following
manner:
3. bills and cheques are presented by payees at
payees’ banks;
5. these items are passed on to clearing
houses;
7. the net positions of participating banks are
calculated at the clearing houses; and
9. payers’ banks bring back bills and cheques
from the clearing houses.

17. The first clearing house in Japan was set up in
Osaka in 1879; the Tokyo Clearing House was
established in 1887. As of December 2001, there
were 540 bill and cheque clearing houses
throughout Japan, of which 173 were designated by
the Minister of Justice.
According to the Bill Law and the Cheque
Law, presentation of bills and cheques at
designated clearing houses is deemed a
means of presentation for payment.

19. In 2001, the average value per transaction for bills and
cheques cleared by the Tokyo Clearing House was JPY
9 million (USD 74,000), for the Zengin System JPY 2
million (USD 16,000), for the FXYCS JPY 720 million
(USD 6 million) and for the BOJ-NET Funds Transfer
System JPY 3.8 billion (USD 31 million).
As of December 2001, 421 institutions
participated in the Tokyo Clearing House, of
which 121 were direct participants

21. BALANCE SHEET FEATURES
AND PERFORMANCE

23. •The balance sheet and performance features
of the Japanese banking system have been
severely affected by the recession in the
economy as well as the financial sector crises
that occured in 1997and 1998.

24. • In 1995 when both Japanese monetory and fiscal
policy turned expansionary. Despite the initially low
levels of interest rates stock prices rise by fifty
percent, the decline of land prices decelerated the
general price level stopped falling and the yen
depreciated.The result was an economic recovery
with a growth in real GdP of over 3 percent in 1996.

25.  The Japanese experience in the 1995-97
period suggest that macroeconomic policies
by themselves will not do enough to restore
balance sheets.
• In 1997 tax increase which was implemented
to restore fiscal balance .Currency economic
projection from organizations forecast real
gdp as declining in 1998,with only moderate
growth in 1999.

26. • The most important factor influencing
Japanese bank performance has been their
enormous levels of bad loans.According to
official figures from Japan’s Financial
Services Agency,the cumulative amount of
loses by way of bad debts for all Japanese
banks amounted to 100000billion yen in
2005.In fact around 8.8 per cent of total
loans were considered non-performing by
2003 although this had fallen to 5.5 per cent
by September 2004.

27. • Major Japanese banks’ capital ratios stiil remain
below international standarts, although capital
positions have improved slightly over 2004/05 and
the large regional banks have higher capital ratios
compared to their city banks competitors.
• After the fall of 2008 the Bank of Japan introduced
new-funds supplying operations and expanded
them,while continuing to provide substantial funds
through existing operations.These developments
were reflected in the Bank’s balance sheet.With
the implementation of various measures,the
balance sheet expanded through the end of fiscal
2008.

28. Banking Crisis in Japan

29. Three facts about Japan’s
banking crisis
• Japanese banks remain the largest in the
world.
• Japanese banks are amongst the least
profitable in the world.
• It is not clear how or why the situation will
improve.

30. Problems confronting Japanese
banks
The banking problems are defined to be
over once the banks ：
Are well capitalized
Stop ever-greening non-performing loans
Are earning rate of return comparable to
their global competitors

33. Regulations of Japan Banking

34. Who is the regulator?
• The banking regulator in Japan is the
Financial Services Agency (FSA), which also
regulates securities, insurance and other
financial service industries.
• The Bank of Japan (BOJ) is the central bank
and the lender of the last resort.
• The BOJ is not a regulator but its objectives
include “contributing to the maintenance of
an orderly financial system”.

35. Establishment of Financial Services Agency
(FSA)
• The time was then more than ripe for a
major overhaul and strengthening of
the regulatory structure, and the
regulatory power was placed with the
newly established FSA.

36. FSA and the financial crisis
• The deflation of the late 1990s through the
early 2000s added to the problem because
the value of collateral real estate kept
falling.
• The deflationary economic environment
made the situation even worse.
• It is only natural that the crisis Japan
experienced in the late 1990s and early
2000s was very Japanese in its nature, its
cause and the way in which it was overcome.

37. Financial Regulation After The
Crisis
• The blanket guarantee of deposits was
removed in 2002 and 2005 in two steps.
• A majority of the capital injected into
the major banks has been collected.
• A large regional bank with more than 4
trillion yen of deposits that was
nationalized in 2003, was
denationalized this year.

38. BANK OF JAPAN
(NIPPON GINKO)
• Bank of Japan (Nippon Ginko in japanese) is the
central bank of japan
• Headquarted in TOKIO
• Was founded in 1882
• Central bank governor is Masaaki Shirakawa
• The bank of Japan has been established with
the following mission:
• 1- Issuing the supply of banknotes in the
country
• 2- Implementing the monetary policy

39. • 3-Compiling data,economic analysis
• 4-Treasury and government security
related operations
• Bank of Japan firstly monetize in 1885
• Bank of Japan peg the interest rates until
the 2013

40. • There are 15 departments at the bank’s
head office.The bank has 32 branches
and 14 local offices in Japan ,7 overseas
representative offices
Capitalized 100 million yen
55% of the capital is subscribed by the government.

41. ECONOMIC FIGURES(2005)
• GDP………………..4.167 trillion dollars
• Current account balance..158.3 billion
dollars
• Exports…………….550.5 billion dollars
• Imports …………….451.1 billion dollars
• Debt-external ……..1.545 trillion dollars
• Unemployment…….%4.3

42. April 24, 2012
Bank of Japan
thousand yen
As s e t s Li a b i l i t i e s a nd N t
e A s ets
s
Go l d 441 , 253, 4 B n k no t e s
a 80, 456, 1 3
09 3, 851
Ca s h 1 349, 675, 0 Cu r r e n t de pos i t s 36, 1 75, 21
00 3, 979
J a p a ne s e g o v e r n me n t 89, 329, 74 O he r de pos i t s
t 9
766, 532, 5
s e c ur i t i e s 9, 666 09
Co mme r c i a l pape r 2 1 , 535, 708 De p o s i t s o f t he 1 , 600, 837
, 672 g o v e r n me nt , 787
Co r p o r a t e b o nd s 3
2, 068, 1 81 Pa y a b l e s u n d e r 1 4, 824, 45
, 383 r e pur c ha s e 9, 684
Pe c u ni a r y t r us t s 1 , 409, 967 a g r e e me n t s
( s t oc ks he l d a s , 832 O he r s
t 10
689, 21 6, 3
t r us t pr op e r t y) 4 86
Pe c u ni a r y t r us t s 937, 001 , 4 Pr o v i s i o ns 3, 236, 447
( i nd e x - l i nke d 58 , 900
e x c ha nge - t r a de d Ca p i t a l 1 00, 000
f u n d s h e l d a s t r us t
Le g a l a n d 2, 686, 1 83
pr ope r t y) 5
s pe c i a l r e s e r ve s , 641
Pe c u ni a r y t r us t s 76, 1 38, 34
( J a pan r e a l e s t a t e 6 To t a l 1 40, 435, 1
i n v e s t me nt t r u s t s 25, 742
h e l d a s t r us t
pr ope r t y) 6
Lo a n s ( e x c l u d i n g 38, 582, 41
t hos e t o t he 0, 000
De p o s i t In s u r a nc e
Co r p o r a t i o n )
Fo r e i g n c u r r e n c y 5, 053, 745
as s e t s 7 , 1 47
De p o s i t s wi t h 97, 804, 81
a ge nt s 8 0
O he r s
t 553, 490, 0
14
To t a l 1 40, 435, 1
25, 742

43. appreciate for your attention

44. Speakers ( in order )
• Ali Emir KÖSE (introcudtion, structure of the banking
system)
• Kübra GÜLMEN (public financial institutions, changing
structure of the financial system )
• Ece TAŞPOLATOĞLU (payment system)
• Merve ÖZALP ( balance sheet features and performance )

45. • Mehmet Orhan AVCI ( banking crisis in Japan )
• Enes DOĞRU ( regulation of Japanese banks )
• Şeyhmus ŞEŞEOĞULLARI ( central bank of Japan )

46. Sources
• http://en.wikipedia.org/wiki/Main_Page
• http://www.boj.or.jp/en/
• http://www.zenginkyo.or.jp/en/
• http://www.ft.com/cms/s/0/502a2ad4-d2ce-11de-
af63-00144feabdc0.html#axzz1uUWd4Pq9
• http://www.bis.org/publ/bppdf/bispap06.htm
• http://www.shinkin-central-bank.jp/index_e.html
• http://en.wikipedia.org/wiki/List_of_banks_in_Japan
• http://www.jp-bank.japanpost.jp/en_index.html
• http://en.wikipedia.org/wiki/Bank_of_Japan
• http://www2.lse.ac.uk/fmg/documents/specialPapers/2002/sp139.pd
f
• http://www.eaber.org/sites/default/files/documents/PRI_Fujiwara_20
06.pdf
• http://www.mizuho-sc.com/english/ebond/institutions/chart.html

47. • http://www.irma-international.org/viewtitle/54704/
• http://www.bis.org/cpss/paysys/JapanComp.pdf
• + Course book