Foreign Currency Liquidity Risk Management at Japanese Major Banks: Efforts and Enhancement
May 22, 2024
Financial System and Bank Examination Department, Bank of Japan
Strategy Development and Management Bureau, Financial Services Agency
Abstract
Securing stable foreign currency liquidity is one of the most important issues for Japanese major banks, as it is the basis of the expansion of their overseas businesses. The March 2023 banking turmoil in the United States and Switzerland shed new light on the importance of managing liquidity risk. Against this background, major banks have been enhancing their risk management through foreign currency liquidity stress testing based on more conservative and appropriate stress scenarios, early warning frameworks, and prompt and accurate liquidity data management. The Financial Services Agency and the Bank of Japan have supported these efforts through initiatives including joint surveys. As a result, major banks' resilience to foreign currency liquidity risk has steadily improved. However, there remains room for further enhancement. Going forward, banks are expected to continue their efforts to further enhance their risk management in line with changes in the risk profiles of their overseas businesses and the external environment.
Notice
The Bank of Japan Review Series is published by the Bank to explain recent economic and financial topics for a wide range of readers. This report, 2024-E-3, is a translation of the Japanese original, 2024-J-7, published in May 2024.
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