Japan Regulator Says Not Considering Bank Capital Surcharge

Japan’s financial regulator denied it plans to force the nation’s largest banks to hold more capital than required under Basel III rules, after a person with direct knowledge of the matter told Bloomberg News that talks on whether to apply a capital surcharge will begin soon.

An official at the Financial Services Agency who spoke on condition of anonymity said at a press conference in Tokyo today that the regulator isn’t considering a capital surcharge. The agency will start internal discussions soon on whether to apply a capital surcharge to systemically important lenders such as Mitsubishi UFJ Financial Group Inc., the person familiar with the matter said yesterday, declining to be identified.

A Swiss government-appointed panel said Oct. 4 that UBS AG and Credit Suisse Group AG should hold more capital than required by the Basel Committee on Banking Supervision. Japan’s largest banks may have to cut dividends or raise more capital should the country impose a capital surcharge, Credit Suisse analysts said this week.

“Our leading banks should, in the long run, further increase capital above the Basel minimum level in order to take certain risks, boost lending, and reap higher profits,” Shinsuke Amiya, a Democratic Party of Japan lawmaker who is a member of the Financial Affairs Committee, said yesterday in an interview.

The FSA’s deliberations may last a year or two, the person said. Japanese lenders should be able to achieve the Basel III levels by building internal reserves, according to the person.

Bank Shares Rise

Bank stocks rebounded after the FSA’s briefing. Mitsubishi UFJ, Japan’s biggest lender, climbed 2.8 percent at 2:21 p.m. in Tokyo after earlier declining as much as 1.8 percent. Sumitomo Mitsui Financial Group Inc., the second-largest bank, advanced 1.6 percent and Mizuho Financial Group Inc., the third largest, gained 7.8 percent, heading for the biggest increase this year.

Japan’s three largest banks have raised about 4.5 trillion yen ($54.1 billion) by selling shares since December 2008, bolstering their balance sheets as regulators called for lenders to hold more capital.

The Swiss panel said last month that UBS and Credit Suisse should hold almost double the capital required under the Basel III proposals announced last month. By 2019, the lenders would need to hold at least 10 percent of capital in common equity, compared with 7 percent required under Basel.

The possibility of a global capital surcharge of around 2 percent for the world’s most important banks “cannot be ruled out,” Shinichi Ina, a Tokyo-based analyst at Credit Suisse, wrote in a report this week.

G-20 Meeting

Group of 20 leaders will consider the Basel III proposals and discuss stricter rules for the biggest banks at a summit in Seoul next month.

As well as Switzerland, China is considering more stringent capital requirements than those proposed by the Basel Committee. China’s banking regulator may require the nation’s biggest lenders to boost their capital adequacy ratios to as high as 15 percent by the end of 2012, a person with knowledge of the matter said last month.

Banks worldwide may resist the imposition of any additional capital burden. Extra capital requirements on the biggest lenders would increase the “economic impact” of regulatory reform, the Institute of International Finance, a group that represents 400 firms worldwide, said this week.