Vol 12 (2015) - Issue 3

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Deposit Insurance System of Japan: Perspectives and Problems

Introduction
A deposit insurance system is an important mechanism to deal with financial risk. Since the issuance of the Glass-Steagall Act and the establishment of the Federal Deposit Insurance Corporation of America in 1933, a deposit insurance system has been formally set up in many countries. In Japan, the Deposit Insurance Act was enacted on 1 April 1971. On 1 July of the same year, the Deposit Insurance Corporation of Japan (DICJ) was established with an initial funding of JPY 455 million from the Japanese government, the Bank of Japan and the financial sector. Under the deposit insurance system of Japan, financial institutions pay specified insurance premiums to the DICJ according to the amount of their deposits. If the financial institutions fail, the DICJ provides a certain amount of insurance proceeds to protect depositors. According to the DICJ, 'The objective of the deposit insurance system is to protect depositors and other parties and attempt to guarantee the fund settlement when a financial institution can no longer repay its deposits, thereby contributing to maintaining stability.'

The scope of insured financial institutions
The deposit insurance system covers the following financial institutions: banks under the definition of the Banking Act, long-term credit banks under the definition of the Long-Term Credit Bank Act, Shinkin banks, credit cooperatives, labour banks, the Shinkin Central Bank, the Shinkumi Federation Bank, the Rokinren Bank and the Shoko Chukin Bank. The headquarters of these banks must be located in Japan. Branches of those financial institutions outside Japan, government-affiliated financial institutions, and foreign banks’ branches in Japan are not covered by the system. However, the system covers foreign banks that have Japanese subsidiaries, namely Citibank of the United States and Shinhan Bank of South Korea. As from October 2012, Japan’s Financial Services Agency has approval from the Financial System Council to subject foreign banks’ branches in Japan to its deposit insurance system. The Norinchukin Bank, agricultural cooperatives, fishery cooperatives and others are covered by the Savings Insurance System of the Agricultural and Fishery Cooperative Savings Insurance Corporation.

The scope of insured deposits and coverage of deposit protection
The deposit insurance scheme covers the following types of deposits: deposits, instalment savings, instalment deposits, money trusts with guaranteed principal (including loan trusts), and bank debentures (limited to custody products). It should be noted that certain types of deposits are not covered by this scheme, including foreign currency deposits, negotiable certificates of deposit and deposits accounted for in special international transaction accounts.