Japan plans bank capital relief for public-private funding

Japan’s Financial Services Agency said on Monday (June 8) that it plans to conditionally relax capital adequacy requirements for banks, in a move designed to encourage them to invest in companies.

Under the proposal, banks would be allowed to hold less capital against certain investments made jointly with government-backed financial institutions.

The regulator regards such public-private investments as carrying lower risks than ordinary investments, meaning banks would not need to set aside the same level of capital as a buffer against possible losses.

The agency will make a formal decision on revisions to the relevant notifications after seeking public comments.

The planned easing is intended to promote public-private funding and help smaller regional businesses, including startups.

It would apply to investments in startups, companies receiving turnaround support and businesses involved in regional economic revitalisation.

To qualify for the lower capital requirement, banks would have to invest alongside the Development Bank of Japan or other government-affiliated lenders.

Japan’s current capital adequacy rules are in line with Basel III, the international financial regulatory framework introduced after the financial crisis that followed the 2008 collapse of US investment bank Lehman Brothers.

The rules require internationally active banks to maintain capital-to-asset ratios of at least 8 per cent, while domestic banks must keep ratios of at least 4 per cent.

The amount of capital banks must hold depends on the type of assets they own.

Stocks are treated as relatively high-risk assets because they carry a greater chance of becoming worthless.

[Copyright The Jiji Press, Ltd.]