A Bank of Japan scheme that paid regional banks and credit unions ¥263.7bn over five years has ended with little notice, money that would otherwise have been paid into the national treasury.
The Special Current Deposit Facility for Strengthening Regional Financial Institutions was announced suddenly on November 10, 2020, six years ago this month. It was among the measures the BOJ introduced during its ultra-loose monetary policy era.
Under the scheme, the BOJ added to the deposit interest it pays regional banks and shinkin credit unions that either cut their expense ratios or merged with another institution. In effect, the central bank gave an allowance to lenders that improved their management, pushing them to rebuild as their finances worsened.
Five years of payments
BOJ financial statements show about ¥260bn, or ¥263.7bn to be exact, was paid to regional banks and credit unions over the five years from fiscal 2021 to fiscal 2025.
The sum is small against the BOJ's balance sheet, which remains vast even as the bank normalizes policy. It earns trillions of yen a year from its holdings of government bonds and ETFs, and its ordinary profit exceeds ¥2 trillion. By ordinary standards, ¥260bn is still an enormous amount.
Most of the BOJ's net surplus, the equivalent of net profit at an ordinary company, is paid into the national treasury and becomes non-tax revenue for the government. The rest is set aside as the bank's own net assets. By paying ¥260bn to regional banks and credit unions, the BOJ reduced what the government received.
Criticism of the scheme
The measures of the ultra-loose era were often criticized as going beyond what a central bank should do. The special interest scheme stands out among them as the weakest of the group.
The money would have gone to the treasury had nothing been done. Instead the BOJ distributed it to regional banks and credit unions on its own authority, and no justification for that can be found.
Public money should be distributed under the responsibility of the government and the Diet. The BOJ itself says as much whenever it is questioned about fiscal policy in the Diet or at press conferences.
Yet on this matter the BOJ went ahead with a payout to one specific sector, regional banks and credit unions, as if it had lost its memory of that principle.