Stability of the financial systemRe

Stability of the financial system
Regarding developments in the above-mentioned financial intermediation, signs of
financial imbalances such as indications of overheating or excessively bullish
expectations have not been observed.
Financial bases of financial institutions have been adequate on the whole. Their capital
adequacy ratios are sufficiently above regulatory levels. The amount of risk that
financial institutions bear has decreased somewhat since the time of the previous Report,
2
mainly reflecting the fall in the amount of credit risk, and financial institutions have
achieved higher levels of capital mainly due to their accumulation of profits. Under
these circumstances, a fine balance has been kept between macro risks to which
financial institutions are exposed and their financial bases, and the financial system
generally has strong resilience against various stresses. However, careful attention
should be paid to the possibility that economic or financial shocks will affect the
stability of the financial system, depending on their speed and extent, as well as the
factors behind them. In terms of funding liquidity, financial institutions have sufficient
funding liquidity in yen funds. As for foreign currency-based funding, they have
funding structures with a large proportion of market funding, but hold a liquidity buffer
that can cover funding shortages even if market funding becomes difficult for a certain
period.
Meanwhile, commodity prices declined substantially, and volatility in global financial
markets has risen across a wide range of instruments. The rise in market volatility has
spilled over into the domestic markets to some extent.