Japan’s Megabanks See Basel Rules Adding Fairness to Global Race

Japanese Bankers Association Chairman Katsunori Nagayasu
Katsunori Nagayasu, president of Bank of Tokyo-Mitsubishi UFJ Ltd. and chairman of the Japanese Bankers Association. Photographer: Akio Kon/Bloomberg

July 9 (Bloomberg) -- Japan’s biggest banks led by Mitsubishi UFJ Financial Group Inc. may benefit from being deemed too big to fail as global regulations make competition “fair and square,” the nation’s new banking lobby chief said.

The rules “are aimed at putting the knife of reform into some global banks, which have been managing their business recklessly in pursuit of short-term profit, drastic dividend payouts and skyrocketing paychecks for bankers,” said Katsunori Nagayasu, chairman of the Japanese Bankers Association and president of Mitsubishi UFJ.

The Basel Committee on Banking Supervision said last month the world’s most important banks must hold as much as 2.5 percentage points in extra capital to prevent a repeat of the global crisis. Japan’s three biggest lenders have enough capital and won’t have to raise funds even if they’re subject to the strictest requirement, Goldman Sachs Group Inc. said last month.

“It may be significant to join the group of global systemically important financial institutions, and any steering committee, because you can get access to information there and express your own opinion,” said Nagayasu, who took the post on July 1. He succeeded Sumitomo Mitsui Financial Group Inc. Chairman Masayuki Oku, whose term as association chief expired.

Nagayasu’s bank will build capital required of so-called global SIFIs even if it is excluded from the category, he said in the July 5 interview.

Play Fair

“We want to play fair,” he said, adding that the lender will be able to boost funds by building internal reserves. “We don’t want a handicap in the global race. So we’ll stick to the rules whether we’re selected as a global SIFI or not.”

Mitsubishi UFJ, Japan’s biggest publicly traded bank, will receive the most stringent capital requirements among the country’s lenders because of its international scope, Goldman Sachs wrote in a June 27 report. The Japanese bank, which raised its stake in Morgan Stanley to 22 percent this year, would be subject to a 1.5 percentage-point capital buffer, the note said.

Closest domestic rivals Sumitomo Mitsui and Mizuho Financial Group Inc. are likely to each need 1 percentage point of extra capital, Goldman Sachs said.

The buffers go on top of the so-called Basel III requirements decided by global regulators last November. Under Basel III, banks will be obliged to hold core Tier 1 capital equivalent to 7 percent of their risk-weighted assets, compared with 2 percent under the previous international rules.

To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net.

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net.