布鲁盖尔-The-effort-to-stabilise-the-financial-system-in-Japan_-an-outline-and-the-characteristics-of-the-programme-for-financial-revival_23页_855kb

Summary of the Programme for Financial Revival in Japan

Core Content

The Programme for Financial Revival in Japan, announced in October 2002, was a comprehensive initiative aimed at resolving the severe issue of non-performing loans (NPLs) that had accumulated since the 1990s. The programme sought to stabilise the financial system and build a stronger, more resilient banking sector. It was structured around three pillars: a new financial system framework, a new corporate revitalisation framework, and a new financial administration framework.

The programme was part of a broader set of emergency economic measures to combat deflation and restore confidence in the financial sector. It included a variety of measures such as stricter asset assessments, reforms in governance, the creation of new institutions like the Resolution and Collection Corporation (RCC), and the use of public funds to recapitalise failing banks.

Main Points

1. Programme Objectives

• To drastically reduce the large amount of non-performing loans.
• To stabilise and strengthen the financial system.
• To create a new framework for financial system, corporate revitalisation, and financial administration.

2. Three Pillars of the Programme

• New Financial System Framework:
  • Focus on supporting SMEs.
  • Developing a reliable financial system.
  • Terminating the NPL problem by FY2004.
• New Corporate Revitalisation Framework:
  • Corporate revival through special support.
  • Utilisation of the RCC for loan claims.
  • Creating favorable environments for corporate revival.
  • New framework for corporate and industrial revitalisation.
• New Financial Administration Framework:
  • Tightening asset assessments.
  • Enhancing capital adequacy.
  • Strengthening governance.

3. Key Measures Implemented

• Stricter Asset Assessments:
  • Introduction of the Discounted Cash Flow (DCF) method.
  • Revisions to the Financial Inspection Manual.
  • Uniform borrower classifications across banks.
• Tax Effect Accounting Reconsideration:
  • Deferred tax assets were re-evaluated.
  • Banks were required to disclose deferred tax asset information.
  • The Financial Services Agency (FSA) conducted stricter inspections.
• Governance Reforms:
  • Reinforcement of accounting audits.
  • Stricter use of prompt corrective action.
  • Governance measures for recapitalisation, including the '30% rule' and conversion rights for preferred shares.

4. Institutional Reforms

• Resolution and Collection Corporation (RCC):
  • Established in 1996 and reorganised in 2002.
  • Played a key role in processing bad loans and supporting corporate revival.
• Public Funds Infusion:
  • Used to recapitalise banks and support SMEs.
  • Total public funds infused reached over 10 trillion yen by 2006.
• Financial Supervisory Agency (FSA):
  • Created in 2000 to oversee financial institutions and improve regulation.

5. Corporate Revitalisation Support

• Industrial Revitalisation Corporation of Japan (IRCIJ):
  • Established in April 2003 to directly support business revitalisation.
  • Supported over 41 companies, with a total debt of 4.02 trillion yen.
  • Supported approximately 10% of Japan's total bad loans.
• Support Procedures:
  • Draft revitalisation plan submission.
  • Agreement with non-lender institutions.
  • Debt purchase and restructuring.
  • Debt disposal within three years.

Key Information

• The Programme for Financial Revival was a response to the delayed disposal of bad loans, which had caused severe financial instability.
• The use of the DCF method marked a significant shift from traditional backward-looking assessments to forward-looking evaluations, leading to a substantial increase in loan provisions.
• The financial crisis in Japan lasted over 14 years, longer than the global average, highlighting the need for timely and transparent NPL resolution.
• The programme included the temporary nationalisation of several banks and the establishment of new regulatory and support mechanisms.
• Governance reforms were critical in improving accountability and transparency within financial institutions.

Conclusion

The Programme for Financial Revival in Japan, though delayed, was considered a success in reducing NPLs and stabilising the financial system. It provided valuable lessons for other economies, particularly in Europe, on how to manage financial crises and implement structural reforms to restore confidence and stability in the banking sector. The programme demonstrated the importance of transparency, timely intervention, and comprehensive governance in financial system revitalisation.