Japanese banks face different kind of stress test

Tokyo

JAPAN's financial regulator is running stress tests to see if too much cash in the system is stifling smaller banks' ability to earn, unlike regulatory tests elsewhere that have been designed to see whether lenders had enough capital to cope with financial shocks.

Two people with direct knowledge of the process said that the Financial Services Agency (FSA) had initiated the tests on concerns that with 10-year Japanese government bond yields near a record low around 0.3 per cent, regional lenders in particular could be at risk as the gap between what they pay for deposits and what they collect on loans and bond holdings shrinks. The FSA was not immediately available for comment.