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| Three Key Points towards the Future |
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Point 1
Can Earnings Be Secured in Retails? |
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| With Japan's Big Bang financial reforms, major Japanese banks established holding companies and expanded, from banking services, to include new business fields such as securities and trust services. Being unable since the 1980s to secure sufficient revenues from its conventional loans operations, banks made an effort expand the income made through service charges and commissions. Among others, banks are seeking to create a profit stream in securities services through investment banking services, such as underwriting. Meanwhile, they are also beginning to focus their strength on fields such as small-scale consumer loans - something that had been left to consumer finance companies up to then - as well as housing loans. |
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Point 2
The Development of High-risk Financial Products, Such as Derivatives, an Issue |
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An issue in terms of investment banking services is the development of high-risk products such as derivatives. Japanese banks have fallen behind the banks of the United States and Europe in such investment banking services. Furthermore, a massive capital base that can withstand risks is necessary in order to perform investment banking services. It was circumstances such as these that created a need for megabanks in Japan. What's more, Japanese banks also needed to turn into megabanks in order to develop their international operations.
As mentioned earlier, the four current megabanks will eventually converge into three megabanks. This will mark the end of the reorganization of the Japanese financial services industry, and new strategies will probably be unfolded in order to recover the major competitive gap that has developed with Western megabanks in the past 10 years. |
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Point 3
Can Japanese Megabanks Compete with Those of the West? |
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The global financial services industry has become a battle between megabanks. The consolidation of banks is not something that is happening in Japan; it is a worldwide trend. While many Japanese banks in the 1980s were ranked in upper positions among banks of the world, they were forced to retreat from the international stage due to the sharp changes that took place in their environment after the bursting of the economic bubble in Japan.
Resona Bank has already shifted to exclusively domestic operations. The consolidation of UFJ Bank with another Japanese megabank will probably take place sooner or later. That means that there will only be three Japanese banks that can develop overseas operations. The big issue of the 21st century will be how the consolidated three megabanks will be able to establish a foundation and compete on the international arena again. This will probably result in the dawn of the development of new international operations for Japanese banks. |
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