Japan announces a relaxation of capital requirements for its banks, supposedly to boost credit to SMEs and startups. The measure aims to stimulate public-private financing but reduces the financial cushions of institutions. The government pressures banks to lend to high-risk companies, many with questionable solvency, while savers see their deposits held in more fragile institutions in the event of a potential crisis.
Credit bubble disguised with fragile balance sheets 💸
The relaxation allows banks to lend with fewer reserves, increasing their exposure to low-quality credits. Many small regional businesses and startups lack the cash flow to repay loans, creating a credit bubble. Bank balance sheets are disguised by accounting for these credits as assets, avoiding forced mergers. This scheme transfers risk from the state to banks and from them to depositors, repeating the pattern of the 1990s bubble.
Happy entrepreneurs, frightened savers 😨
The government sells the measure as a boost to entrepreneurship, but the reality is that SMEs will take on debt they cannot repay. Banks, happy to lend money they don't have, disguise their accounts. And savers, meanwhile, sleep peacefully thinking their money is safe. Everything will be fine until the bubble bursts and investment funds arrive to buy bankrupt companies at bargain prices. Entrepreneurship, yes, but for the funds.