Land Of The Rising Bail In: Deposit Confiscation Coming To Japan Next

We now know that ‘muddle through’ is over [6], and just as we noted here “there may only be painful ways out of this crisis” as we evidenced by Europe’s attack on Cypriot depositors [7]. With the pillars of Abenomics starting to crumble [8], it seems plans are afoot to prepare for the bank failures that will come from a BoJ-inspired out-of-control bond market.

As Nikkei reports [9], Japan’s Financial Services Agency will enact new rules that will forced failed bank losses on investors, if needed, via a mechanism known as a “bail-in.”

The FSA report also notes that Mitsubishi UFJ (MTU), Mizuho Financial (MFG) and Sumitomo Mitsui (SMFG) are among those proposing amendments to allow them to issue the types of preferred shares or subordinated bonds that would be used in such cases.

So not only will Japanese banks suffer VaR shock-driven needs [10] to reduce JGB holdings but a weaker deposit base will further exacerbate the delveraging.

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