JAPAN Law and Practice Contributed by: Tomoyuki Tanaka and Henry Tan, Anderson Mori & Tomotsune
vides for an insurance framework in respect of bank deposits in Japan. The Deposit Insurance Corporation, which was established under the Deposit Insurance Act, provides a public safety net to protect depositors. Local banks headquartered in Japan are pro - tected under this system. Annual insurance pre - mium payments are made by insured banks to the Deposit Insurance Corporation. The insurance coverage is subject to certain limi - tations, including the following. • The deposit insurance system primarily cov - ers ordinary deposits and does not cover foreign currency or derivative deposits. • While deposit accounts for settlement pur - poses generally receive full coverage, other insured deposit accounts are generally cov - ered up to JPY10 million per person and per bank. 7. Prudential Regime 7.1 Capital, Liquidity and Related Risk Control Requirements The framework for regulating local banks’ capi - tal adequacy under the Banking Act has been amended to align with the implementation of Basel III. Local banks with international operations are required to maintain a minimum common equity Tier 1 ratio (CET1) of 4.5%, a minimum Tier 1 ratio (including AT1) of 6% and a capital adequa - cy ratio (including Tier 2 ratio) of 8.0%, pursu - ant to the administrative notice published by the FSA, which is in line with the Basel III regulatory framework.
Meanwhile, local banks who do not have inter - national operations are required to maintain a core capital ratio of 4% (on both a non-consoli - dated and consolidated basis), and those banks employing the internal ratings-based approach are required to have a core capital ratio of 4.5%. The leverage ratio of local banks with interna - tional operations must be kept at 3.15% (or 3.20% in the case of G-SIBs) or higher, follow - ing the amendments to the relevant regulations that came into force in April 2024. Furthermore, a leverage buffer of 0.5% to 0.75% for Japa - nese G-SIBs has been applicable to G-SIBs since 2023. When a local bank’s ratio falls below this level, the FSA can issue an early corrective action order to the local bank. Liquidity requirements concerning liquidity cov - erage ratios and net stable funding ratios have been introduced in line with the implementation of Basel III. Both liquidity coverage ratios and net stable funding ratios must be kept at 100% or higher. These requirements only apply to local banks with international operations. Furthermore, the 2.5% capital conservation buffer, the countercyclical buffer (2.5% maxi - mum, 0% in Japan at present) and G-SIBs/D- SIBs buffer (3.5% maximum, and 0.5% to 1.5% for each local bank (G-SIBs/D-SIBs) selected in Japan at present) have been phased in for local banks with international operations. G-SIBs are also required to meet the total loss-absorbing capacity requirement.
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