[TOKYO (Reuters)]- The Bank of Japan’s Financial System Bureau said on the 14th that the bankruptcy of Silicon Valley Bank (SVB) in the United States is considered to be a small amount of direct exposure to Japanese financial institutions, and that it will affect the Japanese financial system at this time. “I think the impact will be limited,” he said. He said that Japanese financial institutions have sufficient capital as a whole, but that the Bank will carefully monitor interest rate trends and financial institutions’ investment in securities, including the impact of the bankruptcy of Silicon Valley Bank.
I mentioned the impact of the bankruptcy of SVB in an explanation for reporters of the examination policy for financial institutions in fiscal 2023. As for SVB, he pointed out that it was “somewhat peculiar”, such as a high ratio of corporate deposits with low stickiness and many loans to high-risk start-up companies.
In the examination policy for fiscal 2011, we once again included a focus on how financial institutions invest in securities.
Using simulations of earning capacity, etc., we will verify the loss on valuation of securities and the expansion of the amount of risk associated with changes in domestic and overseas yield curves and increased volatility. On top of that, with financial institutions that have concerns about their future profitability and management strength, we will establish a capital level that will enable them to stably demonstrate their financial intermediation function into the future, as well as a managerial level that will ensure this level. The company said it will focus on dialogue with the management team regarding capital policies such as dividends, taking into account the policy and the status of valuation gains and losses on securities.
In fiscal 2022, the U.S. Federal Reserve Board (FRB) will raise interest rates rapidly, causing U.S. interest rates to rise sharply, and the valuation losses on foreign bonds held by Japanese banks will expand. Furthermore, when the Bank of Japan expanded the range of fluctuations in long-term interest rates in December last year, the valuation losses on government bond holdings increased.
The Bank of Japan pointed out that there were regional financial institutions whose valuation losses expanded significantly due to inadequate responses when the loss limit was violated amid falling foreign bond prices. The effectiveness of responses to sudden market volatility was found to be an issue for many financial institutions in terms of the effectiveness of risk management, including the verification of risk tolerance, including analysis of downside scenarios, and the formulation of policies to respond to sudden market volatility. will be verified.
(Edited by Takahiko Wada: Ami Miyazaki)