Executives of the Financial Services Agency instructed top management of regional banks to accurately analyze and understand the impact of rising domestic interest rates on their portfolios and credit costs, and give priority to responding to market fluctuations. I found it encouraging. This was confirmed by several people familiar with the matter.
At a meeting with regional bank leaders last week, officials from the supervisory bureau reported that they were analyzing in detail the impact of recent changes in domestic interest rates on their operations, according to people familiar with the matter. In particular, the impact on securities and credit costs is expected to be large.
The Bank of Japan last DecemberFinancial Policy Decision Convergence, while maintaining the long-term interest rate target at about 0%, the allowable range of fluctuation was expanded from about 0.25% to about 0.5%. The aim is to improve market functioning, but speculation about additional policy revisions is deep-rooted in the bond market, and upward pressure on interest rates continues.
The FSA is looking for management leadership in responding to market fluctuations, according to people familiar with the matter. Considering the speed of domestic interest rate rises, we believe it is important to confirm the impact of assumed market fluctuations on the bank’s earnings and business model, including the positive aspects of interest rate rises.
At last week’s meeting, which was the first since the BOJ’s policy revision, there was no specific reference to monetary policy from the FSA. The agency was not available for comment. The All Japan Regional Banks Association and the Second Regional Banks Association declined to comment.
Fluctuations in domestic interest rates are expected to have a wide range of impacts, not only on securities but also on lending rates and the management of business partners. Deputy Director-General Toshiki Yashiki said in an interview in December last year that the BOJ is expanding its monitoring system and rigorously examining the risks of regional banks holding government bonds and other holdings.
