ABSTRACT
This chapter addresses the changes in Accord compliance costs of Japanese banks. It also addresses the major domestic factors explaining Japan's cosmetic compliance with the Accord. The chapter examines the actual compliance record and analyzes the effects of external pressures on compliance. The Basel Accord was incorporated into Japan's banking regulations when the ministry of finance issued a new administrative guidance in December 1988. The environment for compliance with the Accord in Japan changed radically during the 1990s, however. The Japanese economy collapsed and the financial conditions of banks deteriorated, and the costs to banks of Accord compliance as a result soared dramatically. These changed circumstances substantially affected implementation of the Accord, leading the regulatory authority to exercise regulatory forbearance to a considerable extent and generating thereby only cosmetic Accord compliance. Despite the high and increasing compliance costs for banks, Japan formally remained a Basel Accord country.
