Regulatory matters

12 Months Ended

Mar. 31, 2020

17. Regulatory matters

Regulatory capital requirements

MHFG, MHBK, and MHTB are subject to regulatory capital requirements administered by the Financial Services Agency in accordance with the provisions of Japan’s Banking Act and related regulations. Certain foreign banking subsidiaries are subject to regulation and control by local supervisory authorities, including central banks. Failure to meet minimum capital requirements may initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the MHFG Group’s consolidated financial condition and results of operations.

The capital adequacy guidelines applicable to Japanese banks and bank holding companies with international operations supervised by the Financial Services Agency closely follow the risk-adjusted approach proposed by the Bank for International Settlements and are intended to further strengthen the soundness and stability of Japanese banks.

In December 2010, Basel Committee on Banking Supervision (“BCBS”) issued the Basel III rules text, which builds on the International Convergence of Capital Measurement and Capital Standards document (“Basel II”), to strengthen the regulation, supervision and risk management of the banking sector. Basel III text presents the details of global regulatory standards on bank capital adequacy and liquidity. The rules text sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote the

build-up

of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards.

The Financial Services Agency’s revisions to its capital adequacy guidelines became effective from March 31, 2013, which generally reflect the rules in the Basel III text that have been applied from January 1, 2013.

There are three primary regulatory capital ratios used to assess capital adequacy: Common Equity Tier 1, Tier 1 and Total risk-based capital ratios. The ratios are comprised of Common Equity Tier 1 capital, Tier 1 capital (Common Equity Tier 1 capital and Additional Tier 1 capital) and total risk-based capital (Tier 1 and Tier 2 capital) divided by risk-weighted assets. Common Equity Tier 1 capital primarily consists of common stock, capital surplus, retained earnings and AOCI. Regulatory adjustments including certain intangible fixed assets, such as goodwill, and defined-benefit pension fund assets will be deducted from Common Equity Tier 1. Additional Tier 1 capital generally consists of Basel III compliant preferred securities and other capital that meets Tier 1 requirements under Basel II standards, net of regulatory adjustments. Tier 2 capital generally consists of Basel III compliant deferred obligations, such as subordinated debts, capital that meets Tier 2 requirements under Basel II standards, certain allowances for credit losses and noncontrolling interests in subsidiaries’ Tier 2 instruments.

Under the revised guidelines, the minimum capital adequacy ratio is 8% on both a consolidated and

non-consolidated

basis for banks with international operations, such as MHBK and MHTB, or on a consolidated basis for bank holding companies with international operations, such as MHFG. Within the minimum capital adequacy ratio, the Common Equity Tier 1 capital requirement is 4.5% and the Tier 1 capital requirement is 6.0%.

Under Basel III, capital instruments that no longer qualify as Additional Tier 1 capital or Tier 2 capital are being phased out beginning March 2013 by increments of 10% until becoming fully effective in March 2022. The MHFG Group’s existing subordinated debt issued before March 2013 (the amounts thereof included within Tier 2 capital as of March 31, 2020 being ¥337.4 billion) are subject to the

phase-out

arrangements.

In November 2015, the Financial Services Agency published the revised capital adequacy guidelines and related ordinances to introduce the capital buffer requirements under the Basel III rules for Japanese banks and bank holding companies with international operations, which include the capital conservation buffer, the countercyclical capital buffer and the additional loss absorbency requirements for global systemically important banks

(“G-SIBs”)

and domestic systemically important banks

(“D-SIBs”).

These guidelines have become effective on March 31, 2016. The capital conservation buffer, the countercyclical capital buffer and the additional loss absorption capacity requirement for

G-SIBs

and

D-SIBs

must be met with Common Equity Tier l capital under the

revised

guidelines, and if such buffer requirements are not satisfied, a capital distribution constraints plan is required to be submitted to the Financial Services Agency and carried out. The capital conservation buffer became fully effective in March 2019 at 2.5%. In addition, subject to national discretion by the respective

regulatory authorities, if the relevant national authority judges a period of excess credit growth to be leading to the

build-up

of system-wide risk, a countercyclical capital buffer ranging from 0% to 2.5% would also be imposed on banking organizations. The countercyclical capital buffer is a weighted average of the buffers deployed across all the jurisdictions to which the banking organization has credit exposures. Further, MHFG is currently designated as both a

G-SIB

and

D-SIB,

and the additional loss absorption capacity requirement applied to MHFG was 1.0%. The additional loss absorption capacity

requirement

was the same as that imposed by the Financial Stability Board, which was phased in starting in March 2016 at 0.25% and became fully effective in March 2019 at 1.0%.

Leverage ratio

The Leverage Ratio framework is critical and complementary to the risk-based capital framework that will help ensure broad and adequate capture of both

on-

and

off-balance

sheet sources of banks’ leverage.

Basel III’s leverage ratio is defined as the capital measure (numerator) divided by the exposure measure (denominator) and is expressed as a percentage. The capital measure for the leverage ratio is the Tier 1 capital of the risk-based capital framework, and the exposure measure is the sum of the

on-balance

sheet exposures, derivative exposures, securities financing transaction exposures and

off-balance

sheet items.

In March 2019, the Financial Services Agency published the revised leverage ratio framework and the minimum leverage ratio is defined as 3% on both a consolidated and

non-consolidated

basis for banks with international operations, such as MHBK and MHTB, or on a consolidated basis for bank holding companies with international operations, such as MHFG.

The capital requirements and regulatory adjustments are being phased in over a transitional period as follows (italicized percentages indicate those still in transition periods):


	March 2019			March 2020			March 2021			March 2022			March 2023
Minimum Common Equity Tier 1 capital		4.5	%		4.5	%		4.5	%		4.5	%		4.5	%
Minimum Tier 1 capital		6.0	%		6.0	%		6.0	%		6.0	%		6.0	%
Minimum total capital		8.0	%		8.0	%		8.0	%		8.0	%		8.0	%
Phase out of recognition of capital instruments that no longer qualify as capital		30.0	%		20.0	%		10.0	%		0.0	%		0.0	%
Capital conservation buffer		2.5	%		2.5	%		2.5	%		2.5	%		2.5	%
Countercyclical capital buffer (1)		0.05	%		0.01	%		0.01	%		0.01	%		0.01	%
Additional loss absorbency requirements for G-SIBs and D-SIBs (2)		1.0	%		1.0	%		1.0	%		1.0	%		1.0	%
Minimum Leverage Ratio		3.0	%		3.0	%		3.0	%		3.0	%		3.5	% (3)

Notes:

(1)	Figures assume that the countercyclical capital buffer will continue to be 0.01% after March 2020.

(2)	Figures assume that the additional loss absorbency requirements applied to the Group as a G-SIB and D-SIB continue to be 1.0% on a fully effective basis in future years.

(3)	This figure includes a leverage ratio buffer required to be met at 50% of the additional loss absorbency requirements applied to the Group as a G-SIB under the finalized Basel III reforms.

If the capital adequacy ratio and leverage ratio of a financial institution falls below the required level, the Financial Services Agency may, depending upon the extent of capital

deterioration

, take certain corrective action, including requiring the financial institution to submit an improvement plan to strengthen its capital base, reduce

its total assets, restrict its business operations or other actions that could have a material effect on its financial condition and results of operations.

Capital adequacy ratios and leverage

ratios

of MHFG, MHBK, and MHTB as of March 31, 2019 and 2020 calculated in

accordance

with Japanese GAAP and the guidelines established by the Financial Services Agency are set forth in the following table:


	2019				2020
	Amount		Ratio		Amount		Ratio
	(in billions of yen, except percentages)
Consolidated:
MHFG:
Common Equity Tier 1 capital:
Required (Note)		4,661		8.05		4,978		8.01
Actual		7,390		12.76		7,245		11.65
Tier 1 capital:
Required (Note)		5,529		9.55		5,910		9.51
Actual		9,232		15.94		9,024		14.52
Total risk-based capital:
Required (Note)		6,687		11.55		7,152		11.51
Actual		10,918		18.85		10,722		17.25
Leverage Ratio:
Required		6,257		3.00		6,629		3.00
Actual		9,232		4.42		9,024		4.08
MHBK:
Common Equity Tier 1 capital:
Required		2,388		4.50		2,567		4.50
Actual		6,690		12.60		6,501		11.39
Tier 1 capital:
Required		3,184		6.00		3,422		6.00
Actual		8,527		16.06		8,275		14.50
Total risk-based capital:
Required		4,246		8.00		4,563		8.00
Actual		10,098		19.02		9,865		17.29
Leverage Ratio:
Required		5,758		3.00		6,160		3.00
Actual		8,527		4.44		8,275		4.02
MHTB:
Common Equity Tier 1 capital:
Required		95		4.50		93		4.50
Actual		500		23.67		489		23.64
Tier 1 capital:
Required		127		6.00		124		6.00
Actual		501		23.70		489		23.66
Total risk-based capital:
Required		169		8.00		165		8.00
Actual		505		23.87		491		23.74
Leverage Ratio:
Required		229		3.00		216		3.00
Actual		501		6.55		489		6.79
Non-consolidated:
MHBK:
Common Equity Tier 1 capital:
Required		2,272		4.50		2,403		4.50
Actual		6,363		12.60		6,130		11.47
Tier 1 capital:
Required		3,029		6.00		3,204		6.00
Actual		8,199		16.23		7,905		14.80


	2019				2020
	Amount		Ratio		Amount		Ratio
	(in billions of yen, except percentages)
Total risk-based capital:
Required		4,039		8.00		4,272		8.00
Actual		9,757		19.32		9,482		17.75
Leverage Ratio:
Required		5,517		3.00		5,884		3.00
Actual		8,199		4.45		7,905		4.03
MHTB:
Common Equity Tier 1 capital:
Required		94		4.50		93		4.50
Actual		494		23.58		475		23.10
Tier 1 capital:
Required		126		6.00		123		6.00
Actual		494		23.58		475		23.10
Total risk-based capital:
Required		168		8.00		165		8.00
Actual		498		23.75		477		23.18
Leverage Ratio:
Required		227		3.00		214		3.00
Actual		494		6.53		475		6.66

Note:

The required ratios disclosed above, at March 31, 2019 and 2020, include the capital conservation buffer

of 2.5%, the countercyclical capital buffer of 0.05% and 0.01%, respectively, and the additional loss absorbency requirements for

G-SIBs

and

D-SIBs

of 1.0%, which are all in addition to the regulatory minima. The respective required amounts are determined by applying the ratios to the sum of the risk weighted assets and certain other risk amounts.

MHFG’s securities subsidiary in Japan is also subject to the capital adequacy requirement under Japan’s Financial Instruments and Exchange Act. Under this requirement, securities firms must maintain a minimum capital adequacy ratio of 120% calculated as a percentage of capital accounts less certain assets, as calculated using Japanese GAAP figures, against amounts equivalent to market, counterparty, and basic risks. Specific guidelines are issued as a ministerial ordinance that details the definition of essential components of the capital ratios, including capital, disallowed assets and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140% will call for regulatory reporting and a capital ratio of less than 100% may lead to a temporary suspension of all or part of the business operations and further, to the cancellation of the license to act as a securities broker and dealer.

Management believes, as of each latest balance sheet date, that MHFG, MHBK, MHTB, and their securities subsidiary in Japan and foreign banking subsidiaries were in compliance with all capital adequacy requirements to which they were subject.