Findings from research and studies conducted at the Financial Research Center (FSA Institute) are organized and published as Discussion Papers to stimulate further discussion and comment.
The views expressed in the papers are those of the authors and do not necessarily reflect the views of the Financial Services Agency or the FSA Institute.
Discussion Papers (FY 2019)
|An Empirical Study on the Effects of the International Financial Regulation on Japanese Banks’ Lending Behavior with a Focus on SME Financing
IWAKI Hiromichi, OGANE Yuta
Abstract | Full text (PDF:2.06MB)(Full text is available only in Japanese.)
|Study in New Business Models of Regional Banks Leveraging Next Generation Technologies
KIMURA Masafumi, TOMITA Naoko, and KAJIMOTO Yuki
Abstract | Full text (PDF:2273KB)(Full text is available only in Japanese.)
|Developments and Outlook for Grasping Real Estate Data
Abstract | Full text (PDF:1398KB)(Full text is available only in Japanese.)
|Fundamentals of the Real Estate Market
SHIMIZU Chihiro, SAITA Yumi, and INOUE Tomoo
Abstract | Full text (PDF:932KB)(Full text is available only in Japanese.)
|Developments in Cyberattacks against Financial Institutions
Abstract | Full text (PDF:959KB)(Full text is available only in Japanese.)
|Sales of Financial Instruments in Line with Customer-oriented Business Conduct
MATSUMOTO Daisuke, NAKANISHI Takao
Abstract | Full text (PDF:2660KB)(Full text is available only in Japanese.)
|Thoughts on the Leverage Ratio Framework: Should the Framework Be Applied to Domestically Active Banks?
Abstract | Full text (PDF:4517KB)(Full text is available only in Japanese.)
An Empirical Study on the Effects of the International Financial Regulation on Japanese Banks’ Lending Behavior with a Focus on SME FinancingIWAKI Hiromichi, Special Research Fellow, Financial Research Center (FSA Institute)
OGANE Yuta, Special Research Fellow, Financial Research Center (FSA Institute)
In this paper we conduct quantitative analyses of the effects of the international financial regulation, which was introduced step by step after the global financial crisis, on Japanese banks’ lending behavior, with a focus on SME financing which constitutes about 70% of total outstanding bank lending. The regulation is composed of several different rules, such as Risk-based Capital Ratio (RBC), Liquidity Coverage Ratio (LCR), and Net Stable Funding Ratio (NSFR). Taking these facts into consideration, we use the difference-in-differences methodology in the analyses, comparing the behavior of banks that are considered to be affected by the individual rules (treatment group) with the rest of banks (control group) before and after the fiscal year when introduction of each regulation was announced. The result of analyses show that the RBC rule has influences on domestic banks that are relatively constrained by the rule (treatment group), implying the possibility of contraction in their SME lending at a later point, whereas little effects are seen for international banks. Regarding the other rules, we cannot find any convincing evidence of significant effects on SME financing, no matter whether banks are domestic or international.
Keywords: International financial regulation; bank lending; and SME financing.
Study in New Business Models of Regional Banks Leveraging Next Generation TechnologiesKIMURA Masafumi, Special Research Fellow, Financial Research Center (FSA Institute)
TOMITA Naoko and KAJIMOTO Yuki
In the situation where environment surrounding regional banks is changing significantly, the regional banks are expected to serve as a “regions’ platformer” by introducing next generation technologies such as artificial intelligence (AI) or cloud computing, which enable them to gather information in a timely manner and make full use of the information for their businesses. Further, through employing and adopting new technologies, the regional banks are required to achieve more efficiency in business operational management.
This paper studies the significance of introducing these next generation technologies especially for their profits (revenue and cost) and proposes a new business model using the technologies. In particular, as ways to strengthen profitability, we make a quantitative analysis of the use of new technologies that what kind of effect they would bring to regional banks’ businesses. We also examine necessary conditions for employing these technologies. As a result of the analysis, we find that through enjoying an effect of the new technologies to profits and expenses, there would be a positive effect of JPY 140 billion in net operating profits from core business of overall regional banks by the end of fiscal year 2033 as well as estimated decrease in the number of banks with operating losses from core business. On the other hand, we find that there is a “first-mover advantage” to the introduction of new technologies, and positive effects differ among regional banks depending on the degree of their initiatives to leverage new technologies. In addition, through competition with Fintech firms, profits of regional banks overall may be eroded. Each regional bank needs to grope for any possibilities to introduce new technologies as soon as possible upon taking into account sufficiency of their management vitality.
Keywords: Regional banks; business model; next generation technologies; operating profits from core business; quantitative effect; and management vitality.
Developments and Outlook for Grasping Real Estate DataSHIMIZU Chihiro, Special Research Fellow, Financial Research Center (FSA Institute)
Many major economies have experienced severe economic stagnations materializing after an asset price bubble, which is a surge and a subsequent drop in real estate prices. Real estate prices in major cities of the United States and Europe began to surge in the early 2000’s, expanding the markets for securitized financial instruments backed by real estate, which triggered the global financial crisis by a plunge in real estate prices. Given such a situation, development of economic indicators that can accurately grasp changes in real estate prices has become significantly important for authorities, especially those for macroeconomic policy. Initiatives to organize official statistics such as real estate price indices are being promoted, led by the International Monetary Fund and the Bank for International Settlements. This paper aims to clarify policy issues concerning real estate price indices and then explain how real estate information is currently being administered in Japan.
Keywords: Real estate information; information asymmetry; price index; Hedonic Approach; repeat sales approach; and Carli price index.
Fundamentals of the Real Estate MarketSHIMIZU Chihiro, Special Research Fellow, Financial Research Center (FSA Institute)
SAITA Yumi and INOUE Tomoo
This paper conducts a long-term time-series analysis of factors determining land prices in Japan. By applying “discounted present value model,” which is a land price theory, to prefectural land price data, we conduct a co-integration analysis and estimate an error-correction model. The analysis shows that there is a co-integrated relationship between the discounted present value of land prices calculated from fundamentals, such as income, interest rates and expected growth rate, and the actual land prices. We also find the possibility that demographic factors may be affecting land prices. From the error-correction model estimated using the co-integrated relationship, we learn following points as factors causing short-term price changes. For the six major cities in Japan, as interest rates were maintained at a low level from the mid-1980’s to the late 1980’s, the discounted present value of land prices increased significantly with an upswing in the expected growth rate, and the huge amount of bank lending also contributed to the rise in land prices. In the early 2000’s, reflecting the continuing economic growth in the low interest rates environment, the discounted present value contributed to increasing the land prices, and also recovering of land prices that had declined below equilibrium were notable. Thereafter, however, downward pressures on land prices stemming from demographic factors strengthened and so land prices did not recover to the level estimated from the fundamentals. In the regional area, at the time when the bubble emerged and collapsed, the ripple effect from the source of the bubble (i.e., the major six cities including Tokyo) was significant and it seems prices surged and dropped more than the changes in the fundamentals. In the 2000’s, the ripple effect has gradually faded and in late 2000’s specific factors of the regions (the fundamentals and demography) have led the price movements, which implies the possibility that the real estate market is being fragmented by regions.
Keywords: Discounted present value; real estate bubble; co-integration; error-correction model; and a declining population.
Developments in Cyberattacks against Financial InstitutionsSASAKI Minoru, Research Fellow, Financial Research Center (FSA Institute)
Recently, risks of cybersecurity have been increasing significantly. On the country level, the Japanese government is strengthening its efforts on cybersecurity given the upcoming Olympics and Paralympics to be held in Tokyo next year, and on the international level, issues such as intervention to elections and the security of IT infrastructures are being discussed.
In terms of individual cybersecurity incidents, information leaks from a social networking services company was reported widely around the world, and in Japan a number of information leaks of over a million personal data have been made public, but given that details of incidents are disclosed for only few cases, it is difficult to capture the actual threat of cybersecurity.
In order to recognize the threat of cybersecurity to financial institutions and understand the risks, this paper collects disclosed information on cybersecurity incidents and compiles information on cyberattacks that have been made against financial institutions in Japan and abroad.
Fraudulent wire transfers using interbank systems including the SWIFT network have been confirmed, so the paper discusses measures taken by SWIFT to prevent fraudulent transfers. Measures that SWIFT requires its user institutions against fraudulent transfers are useful to the security of other systems not related to SWIFT, and it would also be beneficial for financial institutions that are not SWIFT users to understand the measures.
Keywords: Cybersecurity; cyberattacks; SWIFT; fraudulent wire transfers; and crypto assets.
Sales of Financial Instruments in Line with Customer-oriented Business ConductMATSUMOTO Daisuke, Special Research Fellow, Financial Research Center (FSA Institute)
NAKANISHI Takao, Special Research Fellow, Financial Research Center (FSA Institute)
According to our study in fiscal year 2018, we found that there were a considerable number of people who did not invest in spite of feeling the need of accumulating assets. We also discovered that factors preventing investment were the absence of reliable experts, the fact that financial instruments recommended by financial institutions do not necessarily meet customers' needs and their low financial literacy. In order to encourage a shift “from saving to investment,” we discovered that it is important for financial institutions to closely listen to the needs of customers, propose financial instruments that meet customers’ needs and spend time for in-depth consultations including proposals for asset allocation, time diversification in investment and periodic assessment of the investment. We also discussed the possibility that financial institutions may utilize the indicators, such as Net Promoter Score (NPS®), to measure whether sales of financial instruments are made in a customer-oriented way by directly asking their customers about the experiences.
In the previous year, financial institutions tried to grasp how customers assess financial institutions’ efforts in objective and comparable manners. For example, many financial institutions began to measure NPS® and analyze it for its enhancement. This initiative is rapidly expanding. The basis for pursuing customer-oriented business conduct is being formed. However, in a situation where the level of customers’ financial literacy is not necessarily high and the information asymmetry between financial institutions and customers is large, a question remains if it is sufficient so long as customers feel financial services are customer-oriented. In this paper, we study this point by classifying customers into four groups by the level of financial literacy and NPS®, and find that what is truly desirable customer-oriented business conduct is financial services that financial institutions improve customers’ financial literacy and maintain high level of NPS®. The paper also analyzes what kinds of initiatives are necessary to increase such customers.
Keywords: Customer-oriented business conduct; financial literacy; Net Promoter Score (NPS®); households survey; and survey on investment.
Thoughts on the Leverage Ratio Framework: Should the Framework Be Applied to Domestically Active Banks?SUZUKI Toshimitsu, Research Fellow, Financial Research Center (FSA Institute)
Some time has passed since the introduction of the Basel III leverage ratio framework was agreed. However, in Japan, it is only at end-March 2019 that the Pillar 1 minimum requirement was implemented for the framework, and so it is still a current topic.
A revised capital requirement, which incorporated elements of Basel III, was applied to domestically active banks in Japan after one year from the time the capital requirement for internationally active banks was updated to Basel III in end-March 2013. Therefore, domestically active banks may be concerned that, similarly for the leverage ratio framework, Japanese original leverage ratio framework might soon be applied to them, given that the leverage ratio framework for internationally active banks has been changed from “only disclosure requirement” to “Pillar 1 minimum requirement” at end-March 2019.
This report examines whether the leverage ratio framework should be applied to domestically active banks based on findings from calculation of “simple leverage ratio” for 529 domestically active banks in Japan. The report also refers to backgrounds of international agreement on the leverage ratio framework and Japan’s implementation of the framework.
Keywords: Basel; leverage ratio; and capital requirement.