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| The Banking Industry |
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| Current State |
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| Japanese City Banks Will Be Reorganized into Three Megabanks |
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Ministry of Finance Japan |
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The Japanese financial services industry is in the midst of a reorganization of unprecedented scale. The Japanese banking industry is currently centralized into four megabanks. They are The Bank of Tokyo-Mitsubishi, Ltd. (formed through a merger of The Mitsubishi Bank, Ltd. and The Bank of Tokyo, Ltd.), Sumitomo Mitsui Banking Corporation (SMBC; formed through a merger of The Sumitomo Bank, Ltd. and the former Mitsui Bank Ltd.), Mizuho Bank, Ltd. (formed through a merger of the Industrial Bank of Japan, Ltd., Dai-Ichi Kangyo Bank, Ltd., and Fuji Bank, Ltd.), and UFJ Bank Limited (formed through a merger of Sanwa Bank, Ltd. and Tokai Bank, Ltd.). |
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| However, disposal of nonperforming loans is not progressing at UFJ Bank, and the bank is facing difficulties securing an adequate equity ratio on its own. For this reason, UFJ Bank is trying to advance a merger with The Bank of Tokyo-Mitsubishi. Meanwhile, SMBC is also exploring the acquisition of UFJ Bank, and it has announced a policy to block a merger between UFJ Bank and The Bank of Tokyo-Mitsubishi. Regardless of which financial group UFJ Bank will ultimately align with, it is for sure that Japanese banks will be reorganized into three megabanks. |
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| The Rapid Advance of Bank Reorganizations, Inclusive of Regional Banks, Is Taking Place |
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| Reorganizations are not limited to major banks, such as city banks. There is large-scale consolidation taking place that involves small- and medium-sized banks, such as regional banks, as well. Full bank deposit protection will come to a complete end in 2005. This includes bank accounts used for settlement purposes, such as ordinary deposits. Once the government guarantee of 100% of bank deposits comes to an end, the upper ceiling on deposit refunds will become limited to 10 million yen per depositor. |
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| It is expected that this will make the selection of banks an even more difficult decision for customers. There is also the possibility that there will be a massive outpouring of deposits from banks that have unfavorable compositions of finances, and there is concern that this may cause chaos in the financial industry. The consolidation of small- and medium-sized financial institutions, such as regional banks, is rapidly advancing with such circumstances in the background. The Japanese government is requesting that banks aggressively dispose of their bad loans and restore the soundness of the compositions of their finances. The government is taking the policy of giving operational guidance to banks that are unable to meet an equity ratio of 6 percent, which is the standard of the Bank for International Settlements (BIS) for domestic business operations, and in some cases, ordering the suspension of business. |
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