By Takaya Yamaguchi and Tetsushi Kajimoto
TOKYO (Reuters) – Financial authorities must be mindful of the risk of excessive regulation aimed at preventing digital bank runs caused by online rumours and speculation, said the former commissioner of Japan’s Financial Services Agency (FSA).
The failure of Silicon Valley Bank and Signature Bank in the United States revealed the speed and size of withdrawals during such runs, but heavy-handed responses must be avoided to prevent stifling the industry, Shinsei Bank Chairman Hirofumi Gomi said.
“If you try to contain withdrawals through additional regulation, that will only open the door for other loopholes in markets,” Gomi told Reuters in an interview on Wednesday. “It would put major restrictions on bank functions such as loan-deposit activity.”
Gomi became a career bureaucrat after joining the Ministry of Finance in 1972. He spent the late 1990s and early 2000s as a senior FSA official dealing with bank and brokerage failures during the post-bubble financial crisis, before becoming commissioner from 2004 to 2007.
Speculation is rife that the Bank of Japan may tweak or even ditch its yield control policy under new Governor Kazuo Ueda, who chairs his first policy-setting meeting on April 27-28.
Gomi said interest rate hikes would be welcomed by banks which have struggled to lift profit due to side effects of prolonged ultra-loose monetary policy under Ueda’s predecessor Haruhiko Kuroda.
“Continuing low interest rates won’t push up economic growth potential,” Gomi said. “Gradual increases in interest rates will lay the groundwork for banks to raise profit.”
“Hasty tightening could have a greater (negative) impact on the real economy though, which would affect banks’ lending attitude and widen unrealised loss from bonds.”
(Reporting by Tetsushi Kajimoto and Takaya Yamaguchi; Editing by Christopher Cushing)
