Japan’s mega banks remain modest in overseas dealing
(18 March 2013 – Japan) According to a source, Japan’s mega banks’ overseas operations have modest and constrained foreign-currency liquidity profiles compared to their ample levels of domestic liquidity.
The source believes that although the mega banks have increased their overseas activities in recent years, they have largely followed a conservative approach and managed their overseas loans in line with their foreign currency deposits.
"However, they are also increasing their reliance on certificates of deposit (CDs) or non-deposit funding sources, such as commercial paper (CP) and bonds, to support their overseas operations," the source said.
"At the same time, the mega-banks’ large Japanese Government Bonds (JGB) holdings – which vastly exceed their outstanding foreign CD and CP issuance – represent a mitigating factor, because the mega-banks can use their JGB as collateral to access foreign-currency liquidity through venues such as the Bank of Japan (BOJ)’s foreign currency loan facilities and the US Federal Reserve’s discount window, in the event of potential disruptions in normal funding channels."
The source also believes the mega banks are unlikely to move beyond their current foreign funding mixes and increase their use of foreign-exchange swaps to the point where they become a significant source of funds.
The source firmly believes Japan’s banks will continue their current selective approach.
"However, they are also increasing their reliance on certificates of deposit (CDs) or non-deposit funding sources, such as commercial paper (CP) and bonds, to support their overseas operations," the source said.
"At the same time, the mega-banks’ large Japanese Government Bonds (JGB) holdings – which vastly exceed their outstanding foreign CD and CP issuance – represent a mitigating factor, because the mega-banks can use their JGB as collateral to access foreign-currency liquidity through venues such as the Bank of Japan (BOJ)’s foreign currency loan facilities and the US Federal Reserve’s discount window, in the event of potential disruptions in normal funding channels."
The source also believes the mega banks are unlikely to move beyond their current foreign funding mixes and increase their use of foreign-exchange swaps to the point where they become a significant source of funds.
The source firmly believes Japan’s banks will continue their current selective approach.
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