Japanese Banking Regulations and SME Finance under the Global Financial Crisis

Abstract

This paper discusses important policy actions in Japanese banking regulation under the global financial crisis, which seriously damaged the Japanese economy. First, the state of Japan's banking industry and an outline of Japan’s banking regulations are discussed. Second, we explain the impacts of the global financial crisis on the Japanese economy and Japanese banks. Then we explain various responses of the small-and-medium-sized enterprise (SME) financing support program and banking regulations against the global financial crisis, including reintroduction of the public fund injection scheme, revision of capital adequacy regulation, and establishment of the Act to Facilitate Financing for SMEs. The measures taken by the Financial Services Agency (FSA) were effective in terms of preventing the shocks from resulting in “the greatest crisis of the century.” However, these measures are temporary ways to avoid exacerbation of the problems; they are not remedies for the structural issues facing the Japanese economy, SMEs, and financial institutions.