🇯🇵 How does Japan protect bank deposits when banks fail?

🇯🇵 How does Japan protect bank deposits when banks fail?

🤯 Their deposit insurance system handled 180+ financial institution failures, including the massive 90's banking crisis

👉 Here's how Japan's ¥10M deposit guarantee scheme works: https://illya.sh/blog/posts/deposit-guarantee-scheme-japan-dia-dicj/

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🏦 The Deposit Insurance Corporation of Japan (DICJ), provisioned in the Deposit Insurance Act (DIA) defines as its goals:

• Deposit insurance
• Financial system stability
• Troubled financial institution resolution

Deposits guarantee is just one of responsibilities

💴 Coverage limits:
• Regular deposits: Up to ¥10M (~$65k/€60k)
• Payment & settlement accounts: 100% covered

💡Fun fact: During the 90s crisis, ALL deposits were fully protected. Japan gradually reduced this to ¥10M by 2005

🚀 How fast do you get your deposits back?

The Incubator Bank case (2010) shows DICJ timeline in practice:
• Bank failed on Friday
• Deposits returned by Monday

3 days/by next working day to have insured deposits available 🤝

💰 DICJ's funding comes from:

• Self-issued bonds
• Insurance premiums paid by banks
• Borrowed funds from financial institutions & public

In practice, operation financing is heavily relied on debt, making it risky long-term 📈

🇯🇵🆚🇪🇺
Japan's & EU's deposit guarantee schemes differ⬇️

🇯🇵 DICJ: Active crisis manager (Act 34 of 1971)
🇪🇺 DGS: Mainly deposit protection (Directive 2014/49/EU)

Japan's approach = more intervention power & broader mandate
EU's approach = more focused mandate

🚨 The system faced its biggest test during the 90s banking crisis:

• 110 financial institutions resolved
• Full deposit protection implemented
• Massive debt-based interventions

DICJ has met its insurance obligations, but at what cost? 🤔

🇯🇵⚠️ Current risks:

• Heavy reliance on debt
• Large US Dollar & Securities exposure
• Currency devaluation, leading to inflation

These could trigger a 90s-style crisis 2.0 📉

🎌 While Japan has been successful in resolving hundreds of financial institution failures, the debt-heavy approach can only be only effective if the value created by credit is larger than the principal

Otherwise, there's another bubble building up 🫧

🇯🇵🧠 For a deeper dive into Japan's deposit insurance system, read or listen my article at https://illya.sh/blog/posts/deposit-guarantee-scheme-japan-dia-dicj/

It covers Japan's deposit insurance's:
• Legal framework
• Historical cases
• Risk analysis
• EU comparison

Got questions? Ask me! 👇