As the business environment of regional financial institutions such as regional banks becomes more difficult, the Bank of Japan will start a new system on the 1st to support the strengthening of the management base of regional financial institutions.
The aim is to maintain the necessary financial services in the future and to support the local economy.
The new system, which the Bank of Japan will start on the 1st, covers local banks, credit unions, credit unions, agricultural cooperatives, and fishery cooperatives.
When these regional financial institutions aim to strengthen their management base by reducing costs or integrating their businesses, they pay an annual interest rate of 0.1% on the "current deposit" deposited with the Bank of Japan.
The period of the system is until 2022.
The background to the BOJ's establishment of a new system that can be said to be unusual for a central bank is that the business environment of regional financial institutions is becoming more difficult due to the effects of the new coronavirus, in addition to the declining population and ultra-low interest rates.
By strengthening the management base, the aim is to enable local businesses and individuals to receive the financial services they need in the future, and to support the local economy.
Regarding regional financial institutions, the government also plans to introduce a new system to grant funds to regional banks that are going to merge or integrate their businesses, and the focus will be on how far concrete movements will be made to strengthen the management base. ..
What is the new system of the Bank of Japan?
Let's take a concrete look at the new system of the Bank of Japan.
First is the "target".
In addition to local banks, credit unions and credit unions, agricultural cooperatives, fishery cooperatives, and labor banks are also included.
Next is "requirements".
The Bank of Japan presupposes that regional financial institutions have a policy of contributing to the sustainable development of the regional economy.
On top of that, it is necessary to strengthen the management base through cost reduction, business integration, merger, etc.
Of these, cost reduction is conditional on lowering the index related to the "break-even point," which is the dividing line between the surplus and the deficit, to a certain extent.
The Bank of Japan believes that it is possible to improve the indicators not only by reducing costs but also by strengthening profitability.
Regional financial institutions that have strengthened their management base in this way will be paid an annual interest rate of 0.1% on the "current deposit" deposited with the Bank of Japan.
Since a part of the BOJ's profits will be used for payment, the amount of money that the BOJ will pay to the national treasury will be reduced accordingly.
According to the Bank of Japan, if this system were applied to all regional financial institutions, the financial institutions would receive more than 70 billion yen annually.
The period of the system is until 2022.
The government also encourages the strengthening of the management base from the institutional aspect
Regarding regional financial institutions such as regional banks, the government is also urging the strengthening of its management base from an institutional perspective.
At a press conference before taking office, Prime Minister Suga said that the number of regional banks "may be too large in the future."
While it has been pointed out that it is in a so-called "overbanking" state, the government excluded the application of the Antimonopoly Act if certain conditions are met even if the loan share increases due to the merger of regional financial institutions in November last year. The special law was enforced.
Furthermore, from the new fiscal year (2021), we plan to establish a new “funding system” to support the reorganization of regional financial institutions.
When a regional financial institution whose main business base is in a region facing a declining population decides on a merger or business integration, it will subsidize part of the necessary expenses such as system investment up to about 3 billion yen.
The Deposit Insurance Corporation of Japan will use the retained earnings obtained from dividends from the financial institutions in which it invests.
The government is increasingly feeling a sense of crisis, saying, "The business environment of regional financial institutions is harsh, and there is a risk that they will not be able to fully fulfill their roles in the future, especially in areas with a declining population."
BOJ Director Eto "I want you to raise the gear of management reform"
Mr. Kimihiro Eto, director of the Bank of Japan, commented on the aim of the system: "Regional financial institutions have supported the financing of local companies and contributed to avoiding the bottoming out of the economy. In order to do so, it is necessary for the regional financial institutions themselves to have a solid physical strength, and for that purpose, the aim is to support the management reform efforts of the regional financial institutions. " ..
On top of that, he told regional financial institutions, "Since regional financial institutions have a very large role to play, I would like you to use this system to raise the gear for management reform. We will also work on things that are not an extension of the past. So, I hope this system will be an opportunity for regional finance and economy to be strengthened in an integrated manner. "