(A) Mergers and Alliances
In the 2000s, a succession of mergers/integrations occurred over a short period of time to create “Mega Banking Groups” such as the Mizuho Financial Group, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group. These mergers/integrations were made possible by the provision of the legal and tax system, which enable banks to undergo large-scale organizational transformations, in addition to the drastic changes in the management environment requiring banks to deal with non-performing loan problems and cope with international competition. These industry-wide reorganizations were not limited to major banks but also spread to regional banks, resulting in the establishment of holding companies in some cases which cover regions broader than before.
(A) Mergers and Alliances
(B) Appearance of New Types of Banks
From 1999, non-financial institutions began to enter the banking business by establishing new types of banks such as banks specializing in settlements or Internet banks. In addition, banks focusing on lending to small and medium-sized enterprises and start-up companies appeared.
The entry of non-financial entities into the banking business led to an amendment to the Banking Act concerning the regulating of bank shareholders from April 2002 : Shareholders of more than 5% of a bank’s total shares must file with the FSA, and those seeking to hold 20% or more need the FSA's permission to acquire the shares and are subject to FSA inspection.
(A) Privatization of Japan Post
The Japanese financial system has been notable for the significant position assumed by public financial institutions both in fund-raising and lending (see the charts on I (2) Market Share). Postal Savings was originally established to promote small-volume personal savings. It had only been allowed to accept deposits from individuals and there has been a limitation on the amount of deposits an individual can place with it (presently, 10 million yen). All these funds collected by Postal Savings used to be entrusted to the Ministry of Finance and invested in other public financial institutions specializing in lending. Japanese Bankers Association (JBA) and other private financial institutions have long been critical of Postal Savings as it has expanded as a result of privileges it gains as a government-run business, and has maintained that public sector businesses should be secondary to those run by the private sector.
The privatization of Postal Services (savings, life insurance and mail) became an immense political issue after 2001, when Junichiro Koizumi took office as Prime Minister. In September 2004, the government decided to privatize Japan Post in 2007, and accordingly, the Diet passed the bills relating to the privatization of Japan Post in October 2005. The law stipulates that (a) Japan Post shall be privatized and split into four companies (a postal service company, postal savings bank, postal insurance company and post office company) that are to be placed under the umbrella of a holding company; (b) The government shall hold over a third of the total volume of shares issued by the holding company while the shares of the postal savings bank and postal life insurance company shall be held entirely by the concerned holding company at privatization, and all these shares shall be completely sold off over a transition period of as long as ten years (to realize final privatization); and (c) The government’s guarantees on postal savings shall be abolished with the requirement of the postal savings bank to pay taxes and join the deposit insurance system.
On October 1, 2007, Japan Post was privatized and the process toward final privatization once began. However, in September 2009, the Democratic Party of Japan (DPJ) came into office after upholding fundamental reviews of postal service duties. On October 20, the DPJ made a cabinet decision on a basic policy for postal reform, which said that uniform services for savings, life insurance and mail will be offered nationwide.
(B) Reform of Public Financial Institutions
With regard to public financial institutions that previously lent money deposited in the Postal Savings to other parties, the Cabinet decided in November 2001 to abolish the Housing Loan Corporation (HLC) by the end of March 2007. Consequently, HLC was transformed to the Independent Administrative Corporation Housing Finance Services Agency on April 1, 2007, to provide support for housing loans issued by private financial institutions.
Meanwhile, as for the remaining eight such corporations, the government compiled the Basic Policy on the Reform of Policy-Based Finance in November 2005. This Basic Policy included the following content: (a) The function of policy finance shall be limited to fund procurement support to small- and medium-sized enterprises and individuals, with the policy financial institutions then integrated into a single institution; (b) The Development Bank of Japan and the Shoko Chukin Bank shall be fully privatized; and (c) The Japan Finance Corporation for Municipal Enterprises shall be abolished. Following the necessary legislation in 2007, multiple policy finance institutions were integrated into the Japan Finance Corporation (a joint stock corporation), and the Development Bank of Japan Inc. and Shoko Chukin Bank (both joint stock corporations) were privatized*. Consequently, the transition process of the new policy financial institution system was implemented in October 2008.
However, on June 2009, laws concerning the Development Bank of Japan and Shoko Chukin Bank were revised because medium-sized and large-sized enterprises also were finding difficulty obtaining financing as a result of the international financial crisis. The period for privatization was revised to ‘within 5 to 7 years’ from ‘April 2012.’ At the same time, it was decided that reviews will be conducted on how the Japanese government should be involved and that necessary measures will be taken following those reviews.
The shares of the Development Bank of Japan Inc. and Shoko Chukin Bank shall be held entirely by the government at privatization. All these shares shall be completely sold off over a transition period of five to seven years to realize final privatization.
In light of the effects of the global financial crisis that stemmed from the U.S. subprime loan problem, the Japanese government and coalition parties compiled “Measures to Counter Difficulties in People's Daily Lives” on October 30, 2008. In it are found the following financial measures, which were later enforced: (1) Increasing the disclosure of information on short-sales, (2) Flexible enforcement of operations of restrictions of banks' shareholding, (3) Facilitating corporate financing for small-and medium-enterprises by strengthening/utilizing the Act on Special Measures for Strengthening Financial Functions and (4) Partial relaxation of capital adequacy ratio requirements. Furthermore, the BOJ conducted the following: (5) Reductions in the interest rate, (6) Supplying funds to the short-term money market, (7) Suspension of selling shares held by the BOJ, (8) U.S. dollar funds-supplying operations, (9) Addition of interest to a part of current deposits held at the BOJ, (10) Purchasing CPs and corporate bonds, (11) Resumption of purchase of shares held by financial institutions, (12) Provision of subordinated loans to banks, etc.
Out of these, for “flexible enforcement of operations of restrictions of banks' shareholding,” they extended the period in which the Banks' Shareholding Purchase Corporation could carry out share purchase operations to March 31, 2012. At the same time, they established a new share purchasing program for purchasing shares of banks and corporations that hold each others' shares.
Furthermore, from the perspective of organizing the framework for eradicating concerns about the environment of regional economies stemming from the financial crisis etc., the Enterprise Turnaround Initiative Corporation of Japan was incorporated based on funding from the government and financial institutions on October 2009. This corporation is a temporary organization which aims to complete these operations in five years.
Moreover, in light of the current severe economic and financial situation as well as employment environment, a law was enforced on December 4, 2009 to facilitate corporate financing for small and medium-sized enterprises, etc. This law requires financial institutions to make an effort to change terms and conditions of loans in the case a customer makes such a request. It is a temporary law that will be effective until the end of March 2011.