Hiroshi Nakaso: New frontier of macroprudential policy - addressing financial institutions' low profitability and intensified competition

Speech by Mr Hiroshi Nakaso, Deputy Governor of the Bank of Japan, at the Kin'yu Konwa Kai (Financial Discussion Meeting), hosted by the Jiji Press, Tokyo, 29 November 2017.

I. Introduction

Japan's financial crisis was reaching its climax 20 years ago in 1997. In November of that year, four financial institutions, including a major one, failed in succession in a single month, a period later referred to as Dark November.1 I clearly remember that this was when Japan's financial system was on the verge of a meltdown. Since the comprehensive safety net for financial system stability was underdeveloped at that time, which is not the case today, the Bank of Japan bore the heavy load of taking measures to stabilize the financial system, including the so-called Tokuyu (special loans). While we barely managed to avert a financial meltdown, the Bank suffered credit losses of about 200 billion yen from the Tokuyu. Following this painful experience of the bursting of the bubble in the 1990s, Japan's safety net has developed greatly, and it now protects financial system stability against failures of not only deposit-taking financial institutions but also securities companies, insurance companies, and financial holding companies.