Noriyuki Morimoto's Blog
Japanese banks cannot decide what they want to eat
Sep 25, 2018
In November 2013, the Financial Stability Board issued the Principles for an Effective Risk Appetite Framework.
According to the Financial Services Agency, this is a management framework to be used as an internal common language that covers the whole range of risk-taking policies, including capital allocation and maximization of profit, with “risk appetite” defined as the types and total amount of risk that each institution actively takes in order to achieve its business plan, based on its specific business model.
Japanese banks are also building RAFs, but it is no exaggeration to say that it is just form without substance.
The core of the RAF, as the FSA states, is the definition of risks that the bank actively takes in order to achieve its business plan, based on its specific business model. The active appetite for risks is an important issue precisely because the risks are to be actively taken.
However, as far as the disclosed descriptions of the Japanese banks’ RAFs are concerned, they lack any concrete description of "risks to actively take". What is written there is merely how to manage the risks that are currently passively accepted. Even if RAF terms are used to describe the management system as reinforcing risk culture, it is at best just a technical improvement, not fundamental governance reform.
In the case of Japanese banks, is it not even possible to consider the specific business models, that is, differentiation in business objectives? Can’t they decide what they want to eat based on their own will and desire? Then, will they eat whatever is around them? A creature that eats anything with a strong appetite seems to be a bit dangerous.
Chief Executive Officer, HC Asset Management Co.,Ltd.
Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (Tokyo Office) in 1990, where he was Director & Consultant for 13 years. His responsibilities also included Benefit consulting and Financial Services consulting. Prior to joining Watson Wyatt, he was responsible for foreign fixed income investment, asset allocation and investment strategy at Mitsui Life Insurance Co., where he managed assets for the company’s variable life products and group annuities as a fund manager. He spent 2 and half years in London managing fixed income assets. He started his investment career as Japanese equity analyst at Mitsui Life in 1983. Bachelor of Arts (Philosophy), University of Tokyo (1981)