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2 pages/≈550 words
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Style:
MLA
Subject:
Accounting, Finance, SPSS
Type:
Essay
Language:
English (U.S.)
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Topic:

Topical Analysis on High Credit Costs

Essay Instructions:

The assigned WSJ article discusses Japan's Central Bank's recent monetary policy of zero-interest loan for small and mid-sized business to help with COVID-19 economic relief. These loans are often issued through community and regional banks. To spur the community and regional banks to make zero-interest loans the Central Bank of Japan began paying interest on central bank deposits, if the bank participates in the zero-interest loan program.
Japan Sets Relief Policy on Full Blast.pdf预览文档
This policy poses unique risks for banks covered in Chapter 11. You question is:
Why could this be bad for banks?
Students should pick one reason and only one reason. This reason must be based on one of the unique risks commercial banks face covered in Chapter 11. Students should then do their best, using supporting quotes and articles from WSJ, why this policy should not be pursued simply due to the one risk chosen.

A link to the Auburn WSJ Proquest Portal is below:
Auburn Proquest WSJ Link (链接到外部网站。)

Detailed directions from the syllabus:
Students should write a (500) word analytical response to the questions which incorporates short quotes and facts from WSJ articles and applying concepts learned in class. Responses should show a clear plan of execution, be analytical, and cite several (at least 3) recent WSJ articles. You are free to use WSJ articles not assigned in class. This is an analytical exercise where there are no explicitly correct or incorrect answers but an opportunity to apply what you learn from the lecture material on current and real economic issues.
Each response should be double-spaced with a size 12 font style Arial, Courier, or Times Roman.Points are deducted for blatant spelling, grammatical, or formatting mistakes, but grading is based on the response’s analytical thought, structure and execution. Students are highly encouraged touse a free online writing tool (Grammarly, Slickwrite, etc.) before submission to avoid point deductions.
https://search-proquest-com(dot)spot(dot)lib(dot)auburn(dot)edu/publication/105983/citation/259D84971EB4872PQ/4?accountid=8421
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Topical Analysis
In March 2020, as the current pandemic negatively affected the global economy, the Bank of Japan (BOJ) designed Covid-19 relief, which was meant to help affected companies stay afloat. BOJ lends cash to banks against lending to small and medium-sized companies as collateral. Banks rushed to this plan, grabbing about $ 250 billion by July. According to Demos (2020), the outstanding nationwide loans totaled 580 trillion yen as of September 2020, an increase of 350 billion dollars, compared to 2019. The amount was roughly as much as the number of deposits by banks in which BOJ imposes negative interest rates. However, as much as this beneficial to banks and the economy, it poses a great risk to banks in the future. That is because it would lead to high credit costs and an increase in non-performing loans.
High Credit costs due to credit risk
Credit risk refers to the likelihood of loss due to the borrower failing to repay a loan or meeting contractual obligations, increasing the cost of debt recovery and interrupting cash flows. Although this lending has assisted several companies, banks are likely to suffer. "We can now make aggressive investments from the loans," said Kazushige Kanai, Gosho Bessho Inn owner who is the beneficiary of unsecured loans. Offering credits to middle or high credit risk customers or companies is likely to increase credit costs and interrupt cash flows (Demos, 2020). Japanese banks' asset quality is likely to deteriorate because of the monetary policy by BOJ which will drive credit costs higher putting their profitability under pressure. Higher credit losses will be reported and rising risk weighted assets will affect capital growth therefore eroding capital safeguards. The extent of asset quality deterioration due to huge lending to credit risk clients will be difficult to assess because loan forbearance schemes and BOJ&rsqu...
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