Japan Regulator Asks Banks to Examine Social Media Risks After SVB

Japan’s Financial Services Agency has urged banks to check their readiness to respond to risks from social media and internet banking after the collapse of several US banks, according to people familiar with the regulator’s thinking.

(Bloomberg) — Japan’s Financial Services Agency has urged banks to check their readiness to respond to risks from social media and internet banking after the collapse of several US banks, according to people familiar with the regulator’s thinking. 

The FSA asked lenders to prepare crisis management manuals and examine their liquidity and risk management systems, the people said, asking not to be identified because the matter is confidential. 

The spread of rumors on message platforms and the ability to quickly withdraw money using mobile banking was widely seen as contributing to the rapid deposit outflows that led to the demise of Silicon Valley Bank and other US regional lenders. 

Japan’s financial regulator and central bank don’t expect similar cases at domestic banks, given their capital bases and balance sheets. Still, growing uncertainty surrounding the financial systems in the US and Europe has led officials to determine that lenders must have risk management systems that can respond flexibly, the people said. 

The FSA asked banks to assess whether they have systems in place to immediately report rumors to management, the people said. It also urged them to check liquidity using stress scenarios and to share the findings with the Bank of Japan, they added. 

The FSA declined to comment, and the BOJ didn’t immediately respond to a request for comment. 

Senior FSA official Tomoko Amaya spoke about liquidity risks in the digital era and the importance of reacting quickly in an interview this week. 

“With the spread of the internet, there’s no time to wait and think about it until the next morning or the next week,” said Amaya, who is vice-minister for international affairs at the regulator. “We have to respond in a cycle that is completely different from the operational cycle of the past.” 

Still, Japanese officials have said that the country’s banks are unlikely to experience the sorts of stresses faced by SVB, which collapsed last month after a flood of deposit withdrawals forced it to sell assets at a loss. 

“There are no Japanese banks with a unique feature of liabilities similar to that of the failed US bank,” the BOJ said in its semiannual Financial System Report last week. Japanese banks have reduced interest-rate risk and the financial system remains sound despite stresses seen in the US and Europe, the central bank said. 

–With assistance from Taiga Uranaka.

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