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Foreign Currency Funding of Major Japanese Banks - Review of the March 2020 market turmoil -

October 13, 2021
AOKI Ryo, ANTOKU Kunimasa, FUKUSHIMA Shunsuke, YAGI Tomoyuki*, WATANABE Shinichiro
Financial System and Bank Examination Department

  1. Currently at the Research and Statistics Department

Most of the major Japanese banks have endeavored to stabilize their foreign currency funding by increasing long term market-based funding and corporate deposits while expanding their overseas lending. In March 2020, when tensions in the international financial and capital markets increased due to the spread of Covid-19, USD lending surged due to the drawdown of commitment lines and other factors. The efforts of individual banks to stabilize their USD funding, as well as the effectiveness of USD funds-supplying by the six major central banks, prevented a major disruption in Japanese banks' USD funding. However, the importance of enhancing the robustness of USD funding structures was reaffirmed, as evidenced by the apparent vulnerability of short-term market-based funding at the height of the stressed environment. Appropriate management of foreign currency liquidity risk is crucial, not only for the stable operation of individual banks but also for the stability of the financial system as a whole. Japanese banks, for which foreign currency funding is one of the most important management issues, need to maintain efforts to strengthen their funding base and upgrade their risk management.

Notice

Bank of Japan Review is published by the Bank of Japan to explain recent economic and financial topics for a wide range of readers. This report, 2021-E-4, is a translation of the original Japanese version, 2021-J-12, published in October 2021. The views expressed in the Review are those of the authors and do not necessarily represent those of the Bank of Japan.

If you have comments or questions, please contact the Financial System and Bank Examination Department (E-mail : emu-.fsbe51_post@boj.or.jp).