Japan Said to Consider Imposing Capital Surcharge on Top Banks

(Bloomberg)--Japan’s financial regulator is considering forcing the country’s largest banks to hold more capital than required under Basel III rules, a person with direct knowledge of the matter said. The Financial Services Agency will start internal discussions soon on whether to apply a capital surcharge to systemically important lenders such as Mitsubishi UFJ Financial Group Inc., the person said, declining to be identified because the matter is confidential.

Japan would follow countries such as Switzerland in moving further than required by the Basel Committee on Banking Supervision to avert the possibility of future bailouts. Japan’s largest banks may have to cut dividends or raise more capital should the country impose a capital surcharge, Credit Suisse Group AG said this week. “Our leading banks should, in the long run, further increase capital above the Basel minimum level in order to take certain risks, boost lending, and reap higher profits,” Shinsuke Amiya, a Democratic Party of Japan lawmaker who is a member of the Financial Affairs Committee, said yesterday in an interview.

The FSA’s deliberations may last a year or two, the person said. Japanese lenders should be able to achieve the Basel III levels by building internal reserves, according to the person. Toshiharu Mashita, a spokesman at the Financial Services Agency, declined to comment on the watchdog’s proposed discussion on capital surcharges.

UBS, Credit Suisse

Mizuho Financial Group Inc., the nation’s third-biggest lender, led an index tracking Japanese bank stocks to the lowest level since 1983 on Oct. 4 after a Swiss panel’s recommendations that the European country’s two largest banks hold more capital spurred speculation Japanese authorities would follow suit. Japan’s three largest banks have raised about 4.5 trillion yen ($54.1 billion) by selling shares since December 2008, bolstering their balance sheets as regulators called for lenders to hold more capital.

The Swiss panel said UBS AG and Credit Suisse should hold almost double the capital required under the Basel III proposals announced last month. By 2019, the lenders would need to hold at least 10 percent of capital in common equity, compared with 7 percent required under Basel. The possibility of a global capital surcharge of around 2 percent for the world’s most important banks “cannot be ruled out,” Shinichi Ina, a Tokyo-based analyst at Credit Suisse, wrote in a report this week.

G-20 Meeting

Group of 20 leaders will consider the Basel III proposals and discuss stricter rules for the biggest banks at a summit in Seoul next month. As well as Switzerland, China is considering more stringent capital requirements than those proposed by the Basel Committee. China’s banking regulator may require the nation’s biggest lenders to boost their capital adequacy ratios to as high as 15 percent by the end of 2012, a person with knowledge of the matter said last month.

Banks worldwide may resist the imposition of any additional capital burden. Extra capital requirements on the biggest lenders would increase the “economic impact” of regulatory reform, the Institute of International Finance, a group that represents 400 firms worldwide, said this week.

To contact the reporter on this story: Shigeru Sato at ssato10@bloomberg.net; Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net


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I must say, the timing of this announcement could not come at more of an important juncture. The IMF in their WEO strongly recommends a recapitalization of the global financial sector and abracadabra Switzerland and Japan decide to dance. Let us see who is next to scoff the laughable Basel III requirements that need be implemented by 2014!!

Cynicism aside, Basel III was constructed for the purpose of long-term structural stability in thought with the assumption of 'good times ahead' (refrain myself from using the the term 'robust'); growth, employment, moderate inflation et al. Thus, it does not come as a surprise the IMF suggests more stringent regulation for the near-term. What worries me here is the 'new normal' that PIMCO's 2 CIOs often morbidly acknowledge. A world in which bank lending is no longer a driver of growth. Honestly, without Investment Banking debt securitization divisions, obtaining loans on mezzanine type paper will become a task better staffed by the the gods.

Confusion is the impetus for change....