Banking regulation and supervision in Japan: Some issues and concerns
| Published date | 01 March 2003 |
| Date | 01 March 2003 |
| Pages | 45-59 |
| DOI | https://doi.org/10.1108/13581980310810408 |
| Author | Maximilian J.B. Hall |
| Subject Matter | Accounting & finance |
Banking regulation and supervision in
Japan: Some issues and concerns
Maximilian J. B. Hall
Received (in revised form): 18th June, 2002
Department of Economics, Loughborough University, Ashby Road, Loughborough, Leicestershire,
LE11 3TU, UK; tel: +44 (0)1509 222714; fax: +44 (0)1509 223910; e-mail: m.j.hall1@lboro.ac.uk
Dr Maximilian J. B. Hall is a professor of
banking and financial regulation in the
economics department at Loughborough
University. His research interests embrace
all aspects of financial regulation, with a
current focus on: financial reform in Japan
and its impact on banking efficiency; the
optimal design of deposit protection
arrangements; and the proposals for over-
hauling the Basel Capital Accord.
ABSTRACT
Despite significant changes to the governing
institutional framework and to operational pro-
cedures, a number of serious doubts remain con-
cerning the cost-effectiveness of banking
regulation and supervision in Japan. This
paper duly highlights these lingering doubts
focusing, in particular, on failure resolution
policy and the authorities’ handling of the
banks’ bad debt problems. The paper concludes
by making suggestions as to how the Japanese
authorities might improve the situation, to the
mutual benefit of Japan and the world economy.
(This paper represents a revised and updated
version of a presentation given at the London
Financial Regulation Group’s Conference on
‘The Institutional Organisation of Banking
Supervision’ held at the London School of Eco-
nomics on 7–8th December, 2001.)
INTRODUCTION
Major improvements have been made to
both the institutional framework govern-
ing the regulation and supervision of
Japanese banks, and to the operational
procedures adopted by the various super-
visory agencies. Despite such moves,
however, a number of concerns remain,
particularly in relation to the failure
resolution policies adopted and to the
authorities’ handling of the banks’ bad debt
problems. Following a description and
assessment of the recent evolution of bank
supervisory policy in Japan, the problem
areas highlighted above are examined in
more detail. The scope for further
increases in cost-effectiveness is clearly
demonstrated, as is the need for an addi-
tional injection of public funds if the
government’s commitment to resolve
speedily the banking industry’s bad debt
problem is to be met.
THE EVOLUTION OF THE
INSTITUTIONAL FRAMEWORK
The institutional landscape governing the
regulation and supervision of financial
institutions in Japan prior to the reforms of
1998 is illustrated in Table 1. The institu-
tions involved comprised: the Ministry of
Finance (MoF) (through its various
bureaux); the Bank of Japan (BoJ); the
Ministry of International Trade and Indus-
try (MITI); and various self-regulating
organisations (SROs).
Under the supervisory reforms of June,
1998,
1
a new supervisory body, the
Page 45
Journal of Financial Regulation and Compliance Volume 11 Number 1
Journal of Financial Regulation
and Compliance, Vol. 11, No. 1,
2003, pp. 45–59
#Henry Stewart Publications,
1358–1988
To continue reading
Request your trial