Above, middle: Nobuo Kuroyanagi, MUFG President
By Michiyo Nakamoto, Financial Times, July 29, 2009
Moves by regulators in big economies to raise capital adequacy requirements on all banks could force financial institutions to restrict lending at a time when they should actually be increasing it, the head of Japan’s largest banking group has warned.
Nobuo Kuroyanagi, president and chief executive of Mitsubishi UFJ Financial Group (MUFG), told the Financial Times that if regulations were imposed “excessively” banks “will move to shrink their assets”.
He said that if that happened small and medium-sized businesses in particular would “find it difficult to borrow funds because banks will shift towards safer assets”.
Mr Kuroyanagi’s concern comes as regulators in the US, UK and Europe have called for a substantial increase in the level of capital banks are required to hold against their assets.
Expectations that capital adequacy rules will be tightened have meant that “globally, each bank is defending itself and there is a question whether this is a good thing,” Mr Kuroyanagi said, adding “already Japanese banks are nervous about their [capital adequacy] ratio”.
Japan’s Financial Services Agency has also expressed concerns that higher capital requirements could encourage banks to take excessive risks in order to boost their returns on capital.
“Excessive capital requirements can result in a big banking system making big profits by taking big complex risks, defeating the whole purpose,” Takafumi Sato, until recently Financial Services Agency commissioner, wrote in a column last month in the FT.
MUFG had a capital adequacy ratio of 11.76 per cent and a tier one ratio of 7.76 per cent at the end of March.
Mr Kuroyanagi emphasised there was a consensus about the need to bring previously unregulated areas of the financial sector under regulator supervision. “Everyone recognises that argument. But . . . to discuss [regulation] in a uniform way, I wonder if that is the right way,” he said.
Mr Kuroyanagi said, for example, that banks with stable funds and liquidity through their deposits did not face the same risks as those that relied on the capital markets for their funds.
MUFG has Y120,000bn ($1,275bn) in deposits, of which Y60,000bn are retail deposits.
“So, we have plenty of liquidity and even if something should happen . . . that liquidity won’t be taken away completely. But banks which rely on the [capital] markets saw their liquidity evaporate immediately,” he said. “I think it is rational to consider regional characteristics and balance sheet differences when [formulating capital adequacy rules].”
Mr Kuroyanagi noted the enthusiasm of regulators had encouraged a sense that tighter capital adequacy requirements were being implemented immediately, even though they were still at the discussion phase.
Given that the world was still in recession “the question is whether the timing is good” for such moves, he added.
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