March 17, 2016
Comment on the Consultative Document: Identification and measurement of step-in risk
Japanese Bankers Association
We, the Japanese Bankers Association (“JBA”), would like to express our gratitude forthis opportunity to comment on the consultative document: Identification and measurement ofstep-in risk issued by the Basel Committee on Banking Supervision (the “BCBS”).
We respectfully expect that the following comments will contribute to your further
discussion.
≪Summary≫○ We disagree with managing step-in risks in the “Pillar 1” framework. We note thatthe size and nature of shadow banking sectors greatly vary across jurisdictions,and any implicit support to such shadow banking entities and its extent may besignificantly affected by individual factors such as the contract terms and business
relationship. In addition, other factors including business models, businesspractices, legal systems and bank supervision frameworks differ acrossjurisdictions and so, managing step-in risks under the globally uniform “Pillar 1”
framework is not considered to be adequate.
○ We believe that the scope of entities subject to identification and measurement ofstep-in risks proposed in this Consultative Document is more far-reaching and lessclear than the scope of shadow banking entities specified by the Financial
Stability Board (“FSB”). The BCBS should fully recognize that the objective of
this Consultative Document is based on the FSB’s policy objective “to monitor
and supervise shadow banking entities properly”, and should narrow down thescope of entities subject to identification and measurement of step-in risks so as tobe aligned with the FSB’s approach.
○ Given that a number of actions and new or enhanced regulations implemented
both by the FSB and the BCBS to address shadow banking risks as well as otherregulatory reforms in some jurisdictions (e.g. UK ring-fencing, US Volcker ruleetc.) have been already implemented following financial crisis, the BCBS should,
toward finalizing this Consultative Document, narrow down shadow banking risks
to what actually needs to be additionally captured, carefully considering it so as
not to bring overlapping regulatory overburden.

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○ In capturing step-in risks, we believe that the BCBS should not widen the gap
between the scope of regulatory consolidation and that of accounting
consolidation. Given that the scope of consolidation provides a basis forunderstanding financial information, widening the gap between the scope of
regulatory consolidation and that of accounting consolidation would possibly
lead to confusion of users of financial statements. In addition, preparing two
different financial statements for both regulatory and accounting purposes in atimely manner is not seen as appropriate, since it would lead to significant
increase in practical burden of financial institutions.

≪General Comments≫(1) Overly conservative regulatory framework(i) We disagree with the BCBS’s proposal to manage step-in risks in the “Pillar 1” framework.
As clearly stated in “Global Shadow Banking Monitoring Report 2015” issued by the
FSB, the size and nature of shadow banking sectors greatly vary across jurisdictions. In
addition, any implicit support to such shadow banking entities and its extent may besignificantly affected by individual factors such as the contract terms and business
relationship with the clients as well as bank-specific factors. Furthermore, we may assume
that the criteria to be relied upon may evolve along with the development of financial
technologies. Given that other factors including business models, business practices, legal
systems and bank supervision frameworks differ across jurisdictions, we assume thatmanaging step-in risks under the globally uniform “Pillar 1” framework may result in
regulatory overburden for certain jurisdiction(s) and may possibly undermine the soundnessof financial system(s) thereof. In addition, such regulation may undermine the functionality of
shadow baking sectors as market-based finance providers. For example, the shadow banking
sectors with undermined functionality as market-based finance may inhibit the Japan’s
initiatives to encourage the shift of money “from savings to investment” through further
utilizing asset management activities and funds aiming at sustainable economic growth andvirtuous economic cycle.
If the BCBS requires the banks to impose capital charge to such potential risks as
step-in risks in the “Pillar 1” framework, taken by shadow banking sectors’ role serving as
market-based finance providers would be taken over by the banks in advance, which would
make the banks more heavily exposed to such risks.
As illustrated in “5.2. Collective rebuttals” of this Consultative Document (p.29),
step-in risks can be shut off or mitigated through the legislative or regulatory frameworkprovided by each jurisdiction. Thus, we support the concept that each jurisdiction’s regulator
properly captures step-in risks as necessary, in consideration of the size and nature of shadow

2 / 14banking sectors specific to each jurisdiction as well as each jurisdiction’s statutory regulations
to shut off step-in risks from occurring.
We believe that the BCBS should not forget an aspect of the shadow banking sectors’
important role in supplying fund to the real economy and the financial system as well as
risk-taking. The BCBS is trying to capture potential risks taken by shadow banking entities“completely” and “entirely” through implementation of the regulatory framework proposed inthis Consultative Document. We believe this is very much like cutting down all trees as they
may cause wildfire. The BCBS needs to consider which is better for the existing ecosystem –large scale deforestation as they may cause wildfire or managing and maintaining forest to
keep ecological productivity – through revisiting the whole picture from a wider view, when
discussing the optimal policy approach for the future.
(ii) The scope of entities subject to identification and measurement of step-in risks
The “Global Shadow Banking Monitoring Report 2015” issued by the FSB narrows
down the requirements for monitored entities in accordance with economic function-basedclassification and refers to the possibility that certain entities that may not pose shadowbanking risks were included in the scope of shadow banking entities. The scope of thisConsultative Document, by mentioning “without limiting the proposals to them [shadowbanking entities]”, definitely treats wide-ranging shadow banking entities than that envisagedby the FSB, and the scope itself is unclear. We believe that if the scope remains unclear thenthe framework would not meet the requirement to “be readily operational” (Principle 4).
We understand that the aim of workstream established by the FSB (“WS1”) was tomonitor shadow banking entities and strengthen the regulation by discussing the “regulations
related to relationships between banks and shadow banking entities.” Accordingly, the BCBS
should reaffirm that the objective of this Consultative Document is based on the FSB’s policy
objective to “monitor and supervise shadow banking sectors properly”, and clarify that thescope subject to identification and measurement of step-in risks is limited to shadow banking
entities. When determining the scope of shadow banking entities, we believe that the BCBS
may adopt the “economic functions”-based classification approach used in the FSB’s “Global
Shadow Banking Monitoring Report 2015”.
(iii) The effectiveness of the shadow banking regulations and others implemented after thefinancial crisis should be taken into account.
Before the issuance of this Consultative Document, the WS1 has already enhanced theregulatory framework through regulations such as “Capital requirements for banks’ equity
investments in funds” and “Supervisory framework for measuring and controlling large
exposures.” As described in this Consultative Document, we see many regulatory reforms
have been undertaken steadily to date, including reforms by the BCBS and other reforms
undertaken by national authorities (i.e. UK ring-fencing, US Volcker rule, etc.). In finalizing

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this Consultative Document, we expect the BCBS to narrow down the scope of shadowbanking risks to what actually needs to be additionally captured, carefully considering it so as
not to bring overlapping regulatory overburden in view of the fact that these enhanced
regulations and various reforms have been already put in place.
(2) Insufficient evaluation of the effect and impact on other Basel regulations
As described in paragraph 14 (p.4) of this Consultative Document, we understand thatthe framework to capture risks related to each risk category of banks (i.e. credit risk, market
risk, operational risk and liquidity risk) has been already established through the definedframeworks including capital requirements and liquidity requirements. In addition, the rules
have been already put in place to impose capital charge for economic interests of banks infunds and securitization transactions according to certain criteria.
In this Consultative Document, the BCBS has not shown the specific examples of how
banks would be affected by step-in risks (e.g. in terms of capital and liquidity requirement). In
Japan, we have not experienced any step-in cases during the financial crisis and its impact
was little or none. Therefore, we believe that it is difficult to evaluate the nature of such risks.
If various regulations implemented without any adjustments resulting in regulatory
overburden, it may possibly lead to certain issues such as market disruption or distortion, thenglobal economic activities by private sector companies may be also adversely affected.
Assuming that the consolidated approach is to be applied, banks will be required to
implement a detailed quantification and management for market risk and operational risk
arising from step-in risk. We are skeptical about if managing such risks would be necessary inreality along with the management of step-in risks.
If the consolidated approach proposed in this Consultative Document were to be
applied, we assume that daily and monthly monitoring of the Liquidity Coverage Ratio (LCR)
and leverage ratio would be required by consolidating the data of those entities that are notconsolidated for accounting purpose. Given that it is difficult to obtain information in a timely
manner from an entity that is not included in scope of accounting consolidation, the bank may
fail to comply with these existing regulations. Notwithstanding, the BCBS has not made any
particular reference to such anticipated impact in this Consultative Document. Thus, we
believe that the BCBS should analyze and consider how this Consultative Document, if
applied, would affect other Basel regulations such as capital requirements and liquidity
requirements, before determining the basic direction of the regulation for managing step-in
risks..
(3) Gap between the scope of regulatory consolidation and accounting consolidation
We believe that the BCBS should not widen the gap between the scope of accounting
consolidation and that of regulatory consolidation when capturing step-in risks.
The scope of consolidation provides a basis for understanding financial information.

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Widening the gap between the scope of disclosed regulatory consolidation would not bedesirable in terms of ensuring effective market discipline based on the fact that disclosed
accounting and regulatory financial information (e.g. information of RWA) is widely
divergent. According to Basel II capital framework document, the BCBS noted its intension to
make efforts to reduce, wherever possible, “inappropriate disparities” between regulatory andaccounting consolidation scopes. In addition, “Revised Pillar 3 disclosure requirements”
issued by the BCBS in January 2015 require reporting of reconciliation and differences
between accounting and regulatory financial statements. Considering the comments provided
by users of financial statements such as investors in the global discussion concerning thedisclosure requirements (i.e. EDTF etc.), we believe that certain users of financial statements
may not fully understand the various differences between the data based on financial
accounting standard and that based on regulatory standard. Further widening the gap may
possibly disrupt users of financial statement and undermine the transparency of information
disclosed.
In addition, preparing two different financial statements for both regulatory andaccounting purposes would lead to significant increase in practical burden of financial
institutions. In particular, we are concerned about the significant impact in practical burden in
the jurisdictions (including Japan) where the scope of accounting consolidation has beenaligned with that of regulatory consolidation. If the scope of regulatory consolidation isextended and covers more than that of accounting consolidation, it will be necessary to timely
obtain information from entities that are not included in scope of accounting consolidation,
which we assume would be extremely impracticable. We believe that the BCBS shouldcarefully discuss certain factors, including feasibility to have control over in-scope entities forrisk management purpose, feasibility to request data submission from such entities andoperational burden in practices.

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≪Specific Comments≫
1. Proposed conceptual framework
Q1. What are commenters’ views on the four overarching principles? Are there any others thatshould be included?
(1) Principle 1 “The framework should anticipate the situation after a step-in.”As stated in this Consultative Document, we believe that focus of step-in risk
identification and measurement should be placed on whether the step-in risks of the respective
banks would eventually “affect the financial system.” The framework proposed in thisConsultative Document is structured to identify step-in risks mechanically if, for example, thevoting interest reaches certain threshold, which may possibly capture certain risks that cannot
always pose systemic risk, and we believe that the BCBS should revisit the proposed
framework.
(2) Principle 2 “The framework should be simple and should foster consistent
implementation.”
We believe that it would not be “simple” if the scope of regulatory consolidation, withan aim to capture the step-in risk, covers more wide-ranging than that of accounting
consolidation. According to paragraph 11 (p.3) of the Discussion Paper “The regulatory
framework: balancing risk sensitivity, simplicity and comparability” issued by the BCBS in
July 2013, ideal simple capital standard “avoids reliance on inputs not captured within thenormal accounting or risk management systems of banks.” However, the proposal in thisConsultative Document is not consistent with that concept.
(3) Principle 3 “The framework should be conservative, risk-sensitive and proportional.”
If the framework is “conservative,” we are concerned that certain issues may arise,
including overlapping regulations. Given that step-in risks need to be identified and measured
not “conservatively” but “appropriately,” we believe that the BCBS should revise the text ofthe principle to “the framework should be ‘appropriate’, risk-sensitive and proportional.”
We believe that the scope of capturing step-in risks based on implicit commitments
should be limited to the extent considered reasonable. We note that the scope of assuming
risks based on implicit commitments should be limited to the financial instruments that aredesigned in a way that a step-in by the bank would be justified based on a clear economic
rationale. We consider it inadequate to overemphasize that banks would irrationally step-in
in order to avoid extremely uncertain (or immeasurable) losses arising from reputational risk..
Considering that the risk assessment process proposed in this Consultative Document,
including the “significant influence” criteria, is unclear, we believe that the proposed

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framework is not likely to meet Principle 3 describing that excessively conservative
judgement should be prevented, given that a more conservative judgement is made (or isrequired under supervision) in bank’s ordinary risk management practice.
(4) Principle 4 “The framework should be readily operational.”
The proposal of this Consultative Document includes in-scope entities that are notsubject to management control and timely disclosure requirement. Under such circumstances,a bank needs to take processes by obtaining information required for risk measurement fromsuch entities, asking a supervisor for a decision on whether the step-in risk identification isrequired for such entity and whether the assessment approach is adequate, and then perform
procedures required for risk measurement and reporting. Considering that such processes
including interaction with supervisors are repeatedly required at each reference date to
identify step-in risks (usually at the end of each quarter period), we assume that theframework will not be readily operational.
2. Identifying step-in risk
(1) General view
We believe that most of “Primary indicators” and “Secondary indicators” arequalitative and consequently, step-in risks is difficult to identify. As aforementioned, whether
step-in risk exists and its extent may be greatly affected by bank’s business relationship withthe customer and specific contract terms. Thus, we do not believe it adequate to apply such“one-size-fits-all” approach that step-in risks should mechanically be identified and captured
for regulatory purpose by only meeting any one of the “Primary indicators” or “Secondary
indicators”. We believe that the BCBS should establish a framework where an entity with lesslikelihood of triggering step-in (e.g. finance company for which clearly demonstrates
well-established and independent governance structure, such as those companies publicly
listed) is excluded from the scope.
In addition, if entities are included in scope of regulatory consolidation mechanicallyby the existence of such indicator(s) explicitly or implicitly specified in the contractual
agreement and others, we are concerned that the bank will be required to recognize RWA
excessively. We believe that the BCBS should pay close attention not to determine theframework too conservatively, such as by taking into account the level of likelihood in step-in
identification and measurement.
(2) Primary indicators
Q2. What are commenters’ views on the proposed indicators for step-in risk? Are there any
additional ones that the Committee should consider?

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(i) Definition of ”upfront facilities”
When determining the definition of “upfront facilities”, the BCBS should clarify thatpurchase/investment in securitized products and/or notes or loans to securitization SPCs suchas granting of senior loans are not always in scope of “upfront facilities.” If the definition of
upfront facilities includes purchase/investment of securitized products and/or notes, andgranting senior loans to the SPC serving as the securitization vehicle, such definition will begreatly different from the original objective of this regulation, i.e. identifying step-in risks.
For example, where only senior loans are granted by a bank as an investor to an SPC, it isobvious that such bank is not proactively involved in the management of the SPC and no
incentive to support the SPC when it fails.
(ii) “Significant influence” criteria etc.
We believe that the “significant influence” criteria have not been clearly defined. Ifparagraph 45 (p.13) of this Consultative Document is considered as a guiding “Principle” andbanks are expected to identify and measure step-in risks only for entities that the bank serves
as “sponsor” defined in that paragraph, we can expect that entities which are not relevant may
be excluded from scope to certain extent. However, Example 2 (p.19) of this Consultative
Document describes, in summary, that even in the case where Bank B consolidates an SPC
because of its ‘majority’ voting rights in it, that SPC should be included in the scope of risk
assessment by Bank A, which makes the criteria whether to include in scope is unclear. In
cases where any other company serves as a parent of, and (fully) consolidates, an entity, allassets are attributable to the financial statements of the said parent. Thus, we believe that thebank other than the parent company holds certain portion of equity interests of the said
subsidiary will not be required to perform risk assessment of such a subsidiary. (In Example 2,
we consider that risk assessment coverage of Bank A and that of Bank B may be partly
overlapping.)
We do not see reasonable grounds in applying voting interest model as determinantfactor. The mechanistic assessment only based on the voting rights without taking into
account other factors may result in significantly excessive risks compared to that assumed in
the concept to avoid potential systemic implications, as presented in the objective of Principle
1. We note that both of the straight-forward voting interest model and the qualitative criteria
to determine significant influence are taken into account when determining whether an entity
should be consolidated for accounting purpose. Even if an entity is not consolidated foraccounting purpose because the qualitative criteria are not met, such entity may be determined
to be consolidated for regulatory purpose according to the said straight-forward classification,
which results in excessively conservative risk assessment.
With respect to Principles 3 and 4, we are concerned that the proposed framework
would become much less operational, because the difficulty of identifying and measuring

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step-in risks is likely to result in that the bank may make decision too conservatively, or thebank seeks for the supervisor’s consent for reasonableness of the risk identification scope aswell as the risk assessment category every time of risk measurement.
Even if an entity is an equity-method affiliate, a step-in risk is shut off provided that itis ensured that significant influence cannot be exercised due to certain strict provisions under
the relevant contracts etc. As such, we believe that the BCBS should not require theidentification and measurement of step-in risks provided that the step-in risks are shut off bymeans other than the legal framework illustrated in this Consultative Document.
(iii) External rating
The BCBS should delete “10 | External credit rating based on a bank’s own rating”
from the Table of “Primary indicators.” When determining whether an entity should be
consolidated or not, information asymmetry exists between an audit firm, who has directaccess to the bank’s information for discussion, and other third parties including the credit
rating agencies, who do not have such access, with respect to the bank’s relationship with thesaid entity. In such circumstances, we do not believe it reasonable to conclude that an entity
has implicit bank support only based on the outcome of rating process by the external credit
rating agency although a bank and an audit firm involved in its financial statements audit havedetermined, through their discussion, that the bank has not substantial control over the said
entity. Furthermore, such approach would be incompatible with the BCBS’s policy direction
to reduce mechanistic reliance on external credit ratings.
If an external credit rating were to be used as “primary indicator,” we believe that thescope should be limited to entities such as SPC whose credit rating is mechanically linked to
the relevant bank’s credit rating due to certain reason such as “liquidity enhancement facility”
granted by the bank. Any legal entity that executes business at its own judgement and its
credit rating is not mechanically linked with the bank’s credit rating (e.g. listed financial
institutions) should not be included in the scope.
(3) Secondary indicators
Q3. What are commenters’ views on the proposed secondary indicators for step-in risk? Are
there any additional ones that the Committee should consider? Should any of them beconsidered as primary indicators?
While we may share the concept to propose secondary indicators, we consider thatsome proposed indicators will not work in reality.
It is highly likely that the decisions may vary among banks in evaluating most of
secondary indicators. Thus, we consider that the BCBS should more specifically clarify the

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criteria in determining when and where to evaluate step-in risks in order not to generate gaps
in applied regulations among banks globally. In particular, a bank’s judgement on otherparties’ situations would be required in evaluating certain factors such as (d) originatorincentive (paragraph 54) and (i) composition of the investor base (paragraph 59), andtherefore, we consider it difficult to reach consensus on judgement among banks.
While the BCBS stated in (e) that some entities may possibly be excluded fromaccounting consolidation, we are concerned that no specific background information has been
provided in this Consultative Document, which can be considered problematic. Furthermore,certain qualitative indicators including “(investor) expectation” and “(investor) ability” in (h),(j) and (k) do not involve objectivity, and they would lead to diversity in practice and is not
likely to be operational in reality. While the BCBS proposed that secondary indicators would
be considered by both the supervisors and banks, we do not believe it realistic to determine
the reasonableness of all judgements only by supervisors, without any other view like an audit
by external auditors.
(4) Scope of entities subject to identification and measurement of step-in risks(i) Entities that are already subject to Basel regulations
We consider that any entities subject to Basel regulations or other prudential
supervision of the relevant supervisors and consolidated subsidiaries thereof should not be
included in scope. This is because the banks have already incorporated risks for such entities,
for example, in a way that certain portion of investments in such entities is deducted from
regulatory capital subject to the double-gearing treatment. If such entity is consolidated, we
see that the regulations are overlapping, which leads to regulatory overburden.
In accordance with the capital requirements applied in Japan, when calculatingrisk-weighted assets for mortgage-backed securities and the like, if (a) the amount ofrisk-weighted assets for subordinated exposure calculated using SFA (Supervisory Formula
Approach) is larger than (b) the amount of risk-weighted assets of the underlying assets of thesaid securitized products, banks may apply the amount of (b) as risk-weighted assets. As such,the entire assets of the SPC as an issuing entity of that product have been recognized as
risk-weighted assets in practice here in Japan1. We expect the BCBS to clarify that the processof identifying step-in risks is not required for cases where, if such process would be required,double counting would obviously arise.

1(Reference) Excerpted provisions from Regulations to implement the Basel capital accord issued by the Financial Services
Agency of Japan:“Article 255: Ceiling of required capital
The aggregate amount of required capital for a securitized exposure in a securitized transaction held by a bank that applies anInternal Ratings-based (IRB) approach may be the same as or less than the amount calculated through application of the IRB
approach to the underlying assets in relation to the said securitized exposure.”

10 / 14(ii) Project finance
Project finance generally represents a loan granted by a bank to an SPE established bya sponsor. Then we would like to confirm that project finance is not in scope subject toidentification and measurement of step-in risks. While reference has been made to SPE as
prominent example of step-in in this Consultative Document, the scope subject toidentification and measurement of step-in risks has not been clearly defined. In the cases
where a project finance SPE fails, it is not assumed that lender of senior debt would step in tobail in such SPE (in fact, we assume that the debt is protected/serviced through disposal ofcollateral pledged by project assets or sell-down or assignment of debt to new sponsor). Thus,
such SPE should be excluded from scope.
(iii) Entities held for pure investment purpose
We believe that entities held for pure investment purpose (i.e. investment trusts, unit
trusts, securitized products etc.) should be excluded from scope. Given that these entities areheld for pure investment purpose, we never assume that a bank has any incentive for step-in.

3. Step-in risk assessment approaches
Q4. What are commenters’ views on the different potential step-in risk assessment
approaches? Are there any other approaches that the Committee should consider to accountfor step-in risks?
(While we provide a comment to this question to facilitate constructive discussion, we ask
you to note that we disagree with managing step-in risks in the “Pillar 1” framework.)(1) Consolidation approach
We disagree with applying full consolidation approach and proportionate consolidation
approach, because taking such approaches may possibly require newly preparing financial
statement for regulatory purpose in addition to the financial statements for accounting purpose.
We consider that the BCBS should thoroughly reassess the definition of shadow banking risks
to align with the FSB’s policy objectives and then adopt any approach to measure step-in risks
which allows a bank to take into account the actual impact on the financial system (aconversion approach that reflects such impact into conversion rate, etc. may be considered as
an option).
The BCBS noted that, if consolidation approach is applied, it represents, for the
purpose of prudential supervision, the most likely prudential treatment to replicate ex ante thebanking group situation (paragraph 67 (p.20) of this Consultative Document). Meanwhile, if

11 / 14the consolidation approach is applied, financial institutions are required to prepare
consolidated financial statements for both accounting purpose and regulatory purpose and it
may possibly lead to discrepancy between the accounting information disclosed and the RWA
information disclosed, undermined investors’ confidence on financial statements, andsignificant increase in practical burden. We believe that the costs caused by preparing two
types of consolidated financial statements would overweigh the benefits for prudential
supervision.
The BCBS has provided the definition of the scope of accounting consolidation andthat of regulatory consolidation in paragraphs 30-31 (p.10) of this Consultative Document, but
we think that those definitions have not been well-conceptualized. While the reference has
been made to the concept of “controlling influence” for accounting consolidation scope, noreference has been made for regulatory consolidation scope. While this Consultative
Document includes certain descriptions on multiple indicators and significant influence
criteria and the like, we believe that it is very much unclear where the scope of in-scope
entities is demarcated, given that the legal frameworks may differ among jurisdictions. If
those definitions are not clearly conceptualized, we are concerned that it may be difficult toensure consistency of the criteria to be implemented by national authorities among
jurisdictions.
Paragraph 68 (p.20) of this Consultative Document states that “the Committee expects
that the cases where a bank cannot gather the necessary information from an entity, overwhich it is exposed to a relevant risk of step in, are not common in practice.” However, wenote that it is extremely difficult in practice to obtain necessary information from an entitythat a bank does not consolidate for accounting purpose. It is difficult to obtain suchinformation even from an affiliated company, and in certain cases banks are forced to use such
entities’ financial statements for financial reporting purposes with more than three month time
lag from reference dates.
In addition, this Consultative Document proposes certain approaches requiring
adjustment of consolidation scope (i.e. full consolidation and proportionate consolidation
approaches). Nevertheless, as described in paragraph 70 (p.21) of this Consultative Document,a step-in, once materialized, may not always result in accounting consolidation of the entity
by a bank.
(2) Conversion approach
Determining the rate for conversion approach (“CCF”) should be carefully discussed.
While this proposal has not specified the level of CCF and its concept itself, we believe thatthe level of step-in risk should be lowered when, for example, there is any third party
investor(s) or any company serves as its parent. We believe that it is obviously inadequate tomap indicators to approaches and consistently apply one and the same CCF to all entities
classified in a category. Accordingly, we expect the BCBS to assume various cases in

12 / 14determining CCF and carefully discuss not to require the banks to recognize excessive risk
weighted assets, for example, by applying CCF based on SA (Standardized Approach) even if
the amount of expected bank support is immaterial. We are concerned that excessively
conservative CCF would inhibit banks’ capability to play essential roles to support the growthof business corporations by adversely impacting capital and liquidity ratios.
Even under the conversion approach, it would not be feasible to obtain the figures of
the in-scope entities, such as their total assets, necessary for calculation under current
practices. BCBS should fully take into account the feasibility faced by banks to achieve it andthe necessity for each of information.
(3) Cases where an entity would not be included in scope of consolidation
While paragraph 68 (p.20) of this Consultative Document includes description thatfull consolidation would not be appropriate in certain cases, it has not been specificallydescribed. We believe that the BCBS should clarify such cases so that the bank could
determine when an entity would be excluded from scope of consolidation. We assume that anentity would not be included in scope of consolidation if the bank is not able to obtain therelevant information in a timely manner, but the BCBS should further clarify such cases
envisaged.
Q5. What are commenters’ views on the proposed mapping between the primary indicatorsand the potential approaches?
(While we provide a comment to this question to facilitate constructive discussion, we ask
you to note that we disagree about managing step-in risks in the “Pillar 1” framework.)
The BCBS should carefully discuss on how equity-method affiliates should bemanaged in measuring step-in risks, taking into account certain factors including thetreatment under the current regulatory framework (i.e. deductions from capital for the purposeof calculating the risk-weighted capital ratio, in principle) and likelihood of a step-in. We
expect the BCBS to carefully discuss and determine the approach, in view that (a) in somecases, an equity-method affiliate is formed as a joint venture with other company(ies) andstep-in risk does not exist depending on the terms of shareholders agreement(s) with thebusiness partner(s), and (b) it is impracticable to obtain necessary information since the said
affiliate is not consolidated for accounting purpose (even under the current practices, in somecases a bank is required to use the affiliated companies’ financial statements for financial
reporting purposes with more than three month time lag from reference dates).

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4. Other matters
Q6. What are commenters’ views on proportionate consolidation for joint-ventures?
We consider that the application of “consolidation” approach should be limited tocases, to the extent possible, where it is highly likely that the bank would consolidate thein-scope entity after a step-in.
Q7. What are commenters’ views on risks stemming from banks’ relationship with asset
management activities and funds and the appropriateness of the direction envisaged?
The BCBS should clearly describe that funds held for pure investment purpose and ofwhich a bank is not involved in its origination or custodian services should be excluded fromthe scope that is subject to identification and measurement of step-in risks. We never assume
that a bank has any incentive for step-in for any funds held for pure investment purpose.
(1) Collective rebuttals
We believe that it is extremely difficult in practice for banks to investigate anddetermine whether a step-in is prohibited in accordance with the local laws and regulations ofother jurisdictions at each reference date for assessing step-in risks. As the BCBS recaps andtabulates the countercyclical capital buffer levels determined and imposed by national
authorities, we expect to develop similar framework under which the BCBS or national
authorities to identify and disclose collective rebuttals of each jurisdiction in a comprehensive
manner.
(2) Approach to determine step-in risks for funds
The BCBS should not employ uniform quantitative criteria, applied to the assets undermanagement (AUM) as proposed in paragraph 88 (p.26) of this Consultative Document. Evenif a fund is originated assuming that it is distributed to customers, a bank may temporarily
inject capital as seed money, and we are concerned that applying only such quantitative
criteria may possibly mislead the determination.
(End of text)

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