Are Japanese Banks On The Verge Of Insolvency?

Tyler Durden's picture

We have long discussed the problem that the Japanese government faces if interest rates in the troubled nation rise (cost of debt financing will swamp revenues in a vicious circle); but now it seems there is another - just as vicious - problem (that the BoJ is set to discuss according to Nikkei). The inability of the BoJ to 'control' Japanese interest rates (JGB rates spiking unprecedentedly day after day) has put the banking system in a lot of trouble. As we explained recently the banks appeared to initially 'hedge' their huge JGB positions but now appear to recognize that first out wins and are reducing exposure overall (YTD -3.7% according to local data). The reason - simple - as the IMF explains via the BoJ - according to BOJ estimates (footnote 4), a 100bp (parallel) rise in market yields would lead to mark-to-market (MTM) losses of 20% of Tier-1 capital for regional banks and 10% for the major banks. He who sells first wins...

We said previously:

This is what is going on in JGBs... JGBs were able to rally since smart money was hedging significantly (and not selling) but once the initial clusterfuck exploded after the BoJ meeting (and protection costs soared), it seems clear that JGBs just became far too expensive to hold given their risk and so protection was unwound and positions were reduced... which is why we are now seeing JGB yields jumping...



and as the IMF explains:

JGB market exposures represent one of the central macrofinancial risk factors. This risk reflects the possible impact on public debt sustainability of changes in yields and related effects on investor confidence; the increased role of the private financial sector in covering government borrowing needs; the prospect that ongoing demographic shifts will reduce private saving; and growing household interest in investing abroad.


Interest rate risk sensitivity is especially prevalent in regional banks and insurance companies (JGBs representing about 70 percent of life insurers' securities holdings and 90 percent of insurance cooperatives’ securities holdings). In addition, the main public pension scheme, as well as Japan Post and Norinchukin bank, also have large JGB exposures.


4According to BOJ estimates, a 100 basis point (parallel) rise in market yields would lead to mark-to-market (MTM) losses of 20 percent of Tier-1 capital for regional banks (not taking into account net unrealized gains on securities), against 10 percent for the major banks.

Surely all this has been provisioned for somehow. Or not?

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IridiumRebel's picture

Weebles wobble but they do not fall down.......until they do.

FL_Conservative's picture

Coming next to US banks near you.

THX 1178's picture

All banks that operate in USD are insolvent. They just dont know it yet.

Manthong's picture

um.. how can anything become insolvent in a world of telephone/Email rate rigging, unlimited liquidity and artificial balance sheets?

LibertarianX's picture

Does anyone knoa anything about the French system TRICP?

Apparently banks there can pledge not just securities, but also  loans on their balance sheet as collatteral with the central bank for liquidity 

I heard Germany has a similar system







kridkrid's picture

By definition, aren't all fractional reserve banks on the verge of insolvency?  Faith in the system.  It's all that holds it together at any point.

asteroids's picture

The end will come over a weekend. Rumors will float Friday afternoon. The markets will act funny and then close. Over the weekend accounts will empty and funds moved offshore. Come Sunday afternoon ZH will be on fire with rumor and fact. Come Sunday evening Asian markets will open and the futures will be liimit down.... Finito.

Papasmurf's picture

THX 1178

All banks that operate in USD are insolvent. They just dont know it yet.

They absolutely know it.  It's a trade secret that's been slipping out.  They are insolvent, almost by definition.  Bank is defined on Webster's as:


b obsolete : the table, counter, or place of business of a money changer

2 : a person conducting a gambling house or game; specifically : dealer
3 : a supply of something held in reserve: as a : the fund of supplies (as money, chips, or pieces) held by the banker or dealer for use in a game b : a fund of pieces belonging to a game (as dominoes) from which the players draw
Frozen IcQb's picture

They're not on the verge, they've been insolvant for years.

LawsofPhysics's picture

Yes, Japan's banks have been insolvent for 30+ years.  So is it going to be, Japan, then the PIIGS, then America OR Japan then America then the PIIGS?  Tick tock...

Winston Churchill's picture

The USA will be last unless the BRICS announce a new gold backed currency this year.

The USD looks like it will keep rising until the final swan dive.Which means there will

be even better chances to buy PM's  over the next year.Past that,it gets very interesting.

Of course,WWIII might well screw us anytime at the present rate of stupidity..

On a long enough timeline.......

LawsofPhysics's picture

My thoughts as well.  Sit tight, be productive and wait for the idiots to self-identify.  None of the current fiat will be around too much longer, would be great if the dollar is the last to die.

prains's picture

Land of the Rising Junk !

Divine Wind's picture




Probrem sorved.

They trynna catch me ridin dirty's picture

Funny how you have no problem making rude jokes about Asians but break out the negro jokes and you start whining like Phil Donahue. Typical.

Divine Wind's picture


The Japanese don't have an "L" sound within the phonetics of their language.

When they speak English the L sounds like an R.


Rude Jokes?

Even the Japanese themselves makes jokes about it.

Are you a ronery riberar? I think so.



Taint Boil's picture



Because  …I don’t know… well try and make fun of someone for being white – it doesn’t work. Use this IQ map of the world to see if there is a direct correlation to the funniness of a particular joke. 

nightshiftsucks's picture

 I'm white,I work in Silicon Valley and I'm a minority where I work.I make jokes of myself being white and the other people do think it's funny.

BigInJapan's picture

I constantly refer to the Japanese as "the white people of Asia".

It cracks some up and the others take it as a compliment.

JungleJim's picture

I demand equal time for Negro jokes ....

LawsofPhysics's picture

On the verge of?!?!  LMFAO!!

ziggy59's picture

Its all good!...EU banks stress tests delayed until 2014!
..because theyre doing soooo well this time, Im sure

RebelDevil's picture

UST yields down, but JGB yields up!? Man is the US delusional!

My prediction: JGBs will implode before Fall.

LawsofPhysics's picture

Bold call, what do Japan's liabilities look like by comparison to the U.S.?  If the JGBs go, the USTs can't be too far behind.

Bam_Man's picture

I don't even think they have that long. It could happen tomorrow.

maskone909's picture

JGBD FTMFWBBQ!!!!!!!!!!!!!!!!!!!!


hope this performs as much as i want it too. "~"

Minyan Vince's picture

Kyle Bass trade is finally paying out.

outamyeffinway's picture

He was being very generous with his 2 yr time frame.

Quantum Nucleonics's picture

He's probably still under water.  IIRC, he put the trade on too early and got pounded last year.

Its Only Rock N Roll's picture

Since when has the insolvency of the financial instiutions of a nation mattered lately?

A is A's picture

Funny... I don't remember a spike in interest rate being part of these BS bank stress test in the US..... "But, but they have more than enough capital for a massive downturn!"..... Suuuuurrrrrre.

Dr. Engali's picture

Are they insolvent? The Japanese banks have been insolvent for 25 years now.

yogibear's picture

Japan has had zombie banks. The US is different, we just throw printed dollars at the problem.

Credit expanasion has to stall at some point.

Hughing's picture


yogibear's picture

One US bank already fell down on a weekday, instead of a Friday.

FDIC Seizes Failed Bank in AZ on a WEDNESDAY.

May 15, 2013 19:00


Stares straight ahead's picture

The FDIC wanted a weekend off for a change.

lolmao500's picture

Yes. The two biggest banks in Austria are too.

Schmuck Raker's picture

"Mark-to-market"? What is that?

Is that some Japanese thing?

SDRII's picture

why were MET, PRU so anxious to get itno the Japanese Insurance market. AFLACCCCCCCCCCCCCCCCCCCC

steelhead23's picture

"Surely all this has been provisioned for somehow. Or not?"

Of course it has.  Its in the bag.  Nothing to see here, move along.  You see, the banks of Japan own the government of Japan and the government of Japan will ensure its banks remain liquid - until the yen is worth a half-cent and nobody will sell food or energy to Japan.  Then something bad would happen.

JustObserving's picture

Trilllions in QE have no consequences  - The Wit and Wisdom of Bernanke.

Reality has a different opinion.  Hope the Japanese banks had enough Japanese stocks to offset their loses in bonds.

When Japanese banks fail, they will take down the entire global banking system.  Bernanke better print and save the Japanese bond market. It will be another trillion or so only.

Inthemix96's picture

Well I can tell you straight up here folks that the English banks have been bust since the one eyed scotch fucking cunt Brown bailed them out some five years ago.

Never mind Japan, we have been giving these low down dirty fuckers public money for five years and its funny this, but more un-payable debt just doesnt seen to be the answer to un-payable debt,

Call me a thick cunt, and many have, but I cant see a way out of this jazz unless we hang the fucking idiot clowns running the banks and politics, and then hang their families and friends just to be sure we resolved an unsolveable problem.

Cunts, each and every last one of them.

css1971's picture

Print actual bits of paper. Devalue the currency 10:1. Get serious about inflating our way out of debt.

Fractionally reserved banks are inherently unstable organisations. Been that way since the year  dot... And politicians always do the expedient thing.

No need to hang them. Just tattoo "Banker" on their foreheads.

Hulk's picture

Shit man, you guys shouldn't have cut down all youyr trees, you're going to need them !!!

Inthemix96's picture

Labours final manifesto pledge Hulk was that for every tree they cut down, they would build two lamposts on the publics coin.

These fuckers knew what was coming down the pike, and the back benchers passed it as law.

It wont be long before every street in this hugely over-populated land is swinging with councilors, aparatchicks, and politicians.  Never mind the bankers.  Having said that like, the carion crows are dwindling in population numbers, so this can only be a good thing.

Of course.            :-)

Jason T's picture

Oh that road to hell is paved with good intentions.  

Professorlocknload's picture

Jason, not sure if the biggest wealth transfer from the middle class to the rich and poor is necessarily a "good" intention.