Banking Businesses

(1) Scope of Businesses

Businesses permitted to banks are defined primarily in the Banking Act, which was enacted in 1927 and overhauled in 1981, and fall into six main categories as illustrated below. Ancillary businesses may be conducted either by the bank itself or through its affiliate. Peripheral businesses, on the other hand, must be undertaken only through the bank’s affiliate.
Banking businesses may be conducted by bank agents. Revision to the Banking Act in October 2005 eliminated the regulations on wholly-owned subsidiaries and duty of dedicated services, and thus expanded the scope of parties that may serve as bank agents.

*
Based on Article 12 of the Banking Act, banks are specifically allowed to engage in these businesses.
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(2) Fund-raising

The main source of funds differs depending on the type of banks. Ordinary banks depend on deposits, while trust banks’ main source of funds is trusts, notably investment trusts, money in trusts and pension trusts.
Incidentally, the percentage of all household assets comprised by cash and deposits is comparatively large in Japan.

Major Sources of Funds of Domestically Licensed Banks (as of the end of 2008)

 

Composition of Deposits (year-end)

 

Composition of Household Assets (as of the end of June 2009)

Notes:
(1) Domestically Licensed Banks are defined as banks which are established and licensed under the Japanese legislation.
 
(2) Figures quoted in the charts, if not otherwise specified, are based on domestic branches.
 
(3) The amount of Trust Accounts is the sum of money in trusts, pension trusts, employees’ property formation benefit trusts, and loans trusts.
Source:
Bank of Japan, UK Statistics Authority, The Federal Reserve
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(3) Operation of Funds

Loans and discounts account for about 54% of the total assets of banks.
By sector, manufacturing, real estate, services, and individuals are major borrowers.
By size of borrowers, there had been an increase in loans to small enterprises and to individuals in the 1980s. Since the end of 1980s, the share of loans to those borrowers has remained same at approximately 70%.

Operation of Funds of Domestically Licensed Banks (as of the end of 2008)

 

Composition of Loans & Discounts by Industry (as of the end of 2008)

 

Share of Loans & Discounts to Small Enterprises and Individuals (year-end)

Notes:
(1) Domestically Licensed Banks are defined as banks which are established and licensed under the Japanese legislation.
 
(2) Figures quoted in the charts are based on domestic branches.
 
(3) Figures are based on banking accounts (i.e. excluding trust accounts)
Source:
Bank of Japan
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(4) Securities Businesses

The Financial Instruments and Exchange Act, formerly the Securities and Exchange Act (of which, Article 65 was the Japanese equivalent of the Glass-Steagall Act in the U.S.), has instituted restrictions concerning the conducting of securities businesses by banks. Banks may underwrite and trade public bonds such as government bonds (GB), but may not engage in underwriting and trading equities and corporate bonds (however, banks are allowed to hold them in their portfolios). Due to deregulation in the last decade, banks now may sell investment trusts and handle intermediate sales of other securities including equities.
As to the GB-related business, the first GBs were issued in 1965, and since then banks have played a major role in this business. In correlation with the increase in the outstanding balance of bank’s GB holdings, the Japanese government, in its revision of the Banking Act, initiated steps that allowed banks to engage in retail sales and the dealing of GBs from the early 1980s.
Banks as well as securities firms are now involved in commercial paper-related business.

Outstanding Amount of Government Bonds

 

Sectoral Holdings of JGB (Mar 2009)

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(5) Other Businesses

(A) Insurance Sales by Banks
The sale of insurance by banks was not permitted in the past. However, the revisions to the Insurance Business Act in 2000 made it possible for banks to sell insurance products at bank counters and since then the bans have been lifted step by step. The deregulation of insurance sales at banks was completed in December 2007.

Promotion of Deregulation Concerning Insurance Sales

Date Insurance products for which the ban on sales was lifted
April
2001		 Debt repayment support insurance, Long-term fire insurance, Credit life insurance related to housing loans, Overseas travel accident insurance
October
2002		 Private pension insurance, Asset formation insurance, Accident insurance with an annuity payout feature, Asset formation accident insurance
December
2005		 Single premium whole life insurance, Single premium endowment insurance, Level premium endowment insurance with an insured period of up to ten years, Savings-based pure endowment insurance, Non-life insurance for individuals other than automobile insurance, Maturity refund personal accident insurance
December
2007		 Complete lifting of the ban (Term insurance, Level premium whole life insurance, Medical and long-term care insurance, Automobile insurance, etc.）

 

(B) International Banking Business
Japanese banks conduct international banking businesses such as foreign exchange operations, lending, securities business, trusts business, leasing business, foreign currency deposits, foreign currency exchanges, derivative operations (e.g. future, forwards, swaps and options), trade finance and so on.
Japanese banks were reducing their overseas business as a part of their restructuring programs since the mid-1990s. The number of foreign branches of Japanese banks decreased from 437 as of the end of March 1995 to 130 as of the end of March 2006. However, some signs of recovery have been appearing recently (There were 144 overseas branches as of the end of March 2009).

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