Toshihiko Fukui, Governor of the Bank of Japan, concentrated on the changes surrounding Japan's financial institutions, and assesses their competitiveness and profitability. The Governor also touched upon the lessons learned from the subprime mortgage problems.
“Since Japan's financial institutions' exposure to the U.S. credit markets is relatively low, it appears that so far each financial institution/group has been able to absorb the losses within its annual earnings or its capital base”, Fukui said. “While further developments in the U.S. and European financial markets need to be monitored closely, it seems unlikely that this particular problem will pose a significant threat to the stability of Japan's financial system”, he continued.
Fukui draws two lessons for the management of financial institutions and the functioning of financial markets. These are first of all the difficulty of both transferring and disconnecting the risks from financial institutions.
“In an era of highly distributed risks and well diversified financial intermediation, financial institutions are involved in risk intermediation in various forms and they sometimes have to face unexpected risks once a large shock hits the market”, he said and called financial institutions to improve risk management practices.
As a second lesson he underlined the importance to enhance transparency when developing new financial technologies and products. “Concern over the difficulty in identifying the location of risks has risen since they have been dispersed worldwide through securitization”, he said.
Full speech
© Graham Bishop
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