Regional banks and cooperatives of Japan

Regional banks and cooperatives of Japan

The same, however, can't be said about the regional banks.

These banks are much smaller than the city banks, with average asset size of ¥2 trillion compared with ¥30 trillion for the average city bank. The 11 city banks have combined assets that are twice the combined assets of the 130 regional banks.

A few years ago there were so-called sogo or mutually held banks, but these have been converted to regional banks with share ownership.

Unlike the city banks, which rely on corporate deposits and large corporate loans, regional banks obtain deposits from individuals and loan to local businesses.

In an undifferentiated, regulated environment, people probably will want to bank with a local institution. But as interest rates become deregulated, people might be more willing to bank with the institution that gives them the best deal, wherever that may be.

Since 1985 bank deposits have been deregulated gradually. For example, in 1985 very large time deposits of $10 million were deregulated. In 1989 market interest rates applied to time deposits of $100,000 or more. By 1993, rates on all time deposits had become unregulated, and soon even demand deposits will be freed.

In an increasingly competitive environment, even optimistic experts expect a few regional banks to go under with deregulation.

Besides the regional banks, there are about 440 credit associations and about 410 credit cooperatives. These institutions are similar to America's credit unions, with the credit cooperatives being smaller than the credit associations.

There are also about 5,000 agricultural and fishery cooperatives. Over nine million Japanese farmers are subsidized by the government, and the strength of these agricultural cooperatives shows up in the Norinchukin Bank. The Norinchukin Bank is the central bank of these agricultural cooperatives, and it is the eighth largest bank in the world.