A continuation of current policies will increase the cost to Japanese taxpayers. The stock market clearly reflects continued deep skepticism over the sector's health.
Banks are dangerously undercapitalized.
Current deposit insurance premiums are grossly insufficient. Lending margins are far too low to cover the post-bubble default risk. The government exacerbates these problems by subjecting private banks to subsidized competition from state institutions, e.g. the postal savings system and Japan Housing Finance Corporation, while pressuring them to increase lending to small and medium-sized enterprises at below market interest rates. The reported capital of the Japanese banking system is 35 trillion yen, which is overstated by 8.2 trillion yen of deferred tax assets, and includes 7.5 trillion yen of injected government capital which banks are committed to repay. This capital base pales in comparison with unreserved problem loans amounting to about 52 trillion yen.