The Amendment of the Banking Act; Significantly Loosened Investment Restrictions and Expanded Scope of Business - Banks Need to be Assessed Whether to Remain as a Bank as It Used to be
The Revised Act on Special Measures for Strengthening Financial Functions to support the reorganization of regional financial institutions, the Law for the Amendment to the Banking Act to ease restrictions related to investments and operations, and the Law for the Amendment of the Financial Instruments and Exchange Act to lower the entry requirements for overseas funds, passed the Diet on May 19. With the enactment of the revised laws, the government aims to ensure the financial system stability and strengthen the support for the regional economy by expanding opportunities for revenue increases of banks which have been forced to decline competitiveness in the face of stiff headwinds from extremely low interest rates, contraction of domestic demand, and cross-industrial entrants into the market, while also accelerating integration and reorganization of regional finance.
The first thing to be done is the rebuilding of regional finance. Subsidies will be provided for system investments and reorganization of store networks on the occasions when the management integration is underway. With regard to supportive measures for business succession, the maximum period for stockholding in the succeeding companies will be extended from 5 years to 10 years when the management system of a client company is changing. Besides, in the scope of the assistance of management reconstruction, the investment qualifications that were limited to companies that filed for civil rehabilitation will be relaxed and now companies doing business related to regional revitalization will be authorized to make a 100% investment. Relaxation of the investment requirements indicates that banks will take on a responsibility in a different way from the former financing operation in the light of the bank’s involvement as an interested party in the management of the company to be supported.
Another feature in the amendment is the expansion of the scope of business operations. In addition to conventional ancillary services such as debt guarantees, finance leasing and M&A, banks are allowed to provide a wide range of services. Specifically, it will be possible to engage in selling IT systems and applications that are developed by themselves, dispatching registered staff, monitoring services, business matching, analyzing the accumulated customer data and utilizing them for marketing, and advancing into advertising business. Incidentally, the establishment of a joint venture company by Sumitomo Mitsui Financial Group and Dentsu Group announced last month is based on the anticipation of the current legal amendments.
While regulations have been eased acceleratingly in the financial businesses in association with the trends of FinTech, relaxation of regulations imposed on banks, in other words, banks’ shifting toward general business entities will be concurrently inevitable. However, if that is correct, it is all the more important for banks to expose themselves to the society to prove the grounds for their existence. If relaxation of investment restrictions simply means to promote funding operations, high investment efficiency will definitely be an incentive for selecting companies to support. Accordingly, it may distort the fundamental business strategy of the company to be supported that is always subject to the pressure of coming to an “Exit” end.
Primarily, banking deregulations structurally involve the intrinsic risk factors such as abuse of dominant bargaining position and conflict of interest. Discussion about customer protection from the perspective of customers is also indispensable. Anyway, as we can learn negative examples from the circumstances of Suruga Bank and Japan Post Group companies, hopefully, any compliance deviations shall be prevented in the midst of excessive pursuit of profits.
This Week’s Focus, May 16
Takashi Mizukoshi, the President