Lessons from the Great East Japan Earthquake: Impacts on Payment and Settlement Systems BCRP CELMA seminar April, 2013 Payment and Settlement Systems Department Bank of Japan
1. OVERVIEW OF THE EARTHQUAKE 2
Disaster Areas Seismic center M9.0 50Hz 60Hz Frequency of E lec tric ity Fukushima Daiichi Nuclear Power Plant 3
After the Earthquake: Sendai Branch, BOJ Bank Counter Area Vault Storage Sofa at Waiting Room 4
After the Earthquake: Tohoku Region Iwate Iwate Tsunami Miyagi Japan Peru New Zealand Sources: Cabinet Office, Earthquake Research Institute, University of Tokyo. 5
After the Earthquake: BOJ, Tokyo Disaster Management Team Briefing to the Governor 6
Largest Earthquakes 1952 Kamchatka, Mw 9.0 1964 Alaska, Mw 9.2 2011 Honshu Tohoku, Mw 9.0 2004 Sumatra, Mw 9.1 1960 Chile, Mw 9.5 Source: Earthquake Research Institute, University of Tokyo. 7
Impact on the Economy Amount of damage to capital stock Ratio of amount of damage Ratio to nominal GDP Ratio to total capital stock Great East Japan Earthquake (2011) 16-25 trillion yen 3-5% 1.4-2.2% Great Kanto Earthquake (1923) 4.6 billion yen 29% 9% Kobe Earthquake (1995) 9.9 trillion yen 2% 0.9% Sources: Cabinet Office; Hyogo Prefecture; Bank of Japan, etc. 8
Multi Faced Impacts 1. Earthquake and Tsunami Damaged a wide range of infrastructures including Fukushima nuclear power plants. 2. Shortage of electric power supply Nuclear power plant problem caused shortage of electric power supply for a wide geographical area including the Tokyo Metropolitan area. Government requested industries to reduce electricity usage. 3. Substantial effects on the supply side, mainly production capacity, for some time. Supply chains were temporarily cut off. 9
2. THE BANK OF JAPAN S RESPONSES 10
BOJ s Responses 1. Maintaining the functioning of financial infrastructure Request for special financial measures to assist disaster areas. Supply of cash to financial institutions and exchange of damaged banknotes and coins. billion yen thousand yen 4.0 3.5 3.0 2.5 160 140 120 100 2.0 1.5 1.0 0.5 Bank notes (left scale) Coins (left scale) 80 60 40 20 0.0 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 0 Ensuring stable operation of the BOJ NET. 11
BOJ s Responses (cont) 2. Ensuring the stability of financial markets 3. Supporting economic activity Enhancing monetary easing to preempt a deterioration inbusiness sentimentanddiscourage discourage anincrease inrisk aversion in financial markets. 4. Accurate and timely communication 12
BOJ s Responses (cont) 2. Ensuring the stability of financial markets 3. Supporting economic activity Enhancing monetary easing to preempt a deterioration inbusiness sentimentanddiscourage discourage anincrease inrisk aversion in financial markets. 4. Accurate and timely communication 13
BOJ s Responses (cont) 2. Ensuring the stability of financial markets 3. Supporting economic activity Enhancing monetary easing to preempt a deterioration inbusiness sentimentanddiscourage discourage anincrease inrisk aversion in financial markets. 4. Accurate and timely communication 14
3. THE PRIVATE SECTOR S RESPONSES 15
Private Sector s Responses 1. Maintaining provision of cash services Recovering offices and opening temporary windows. Supply of cash to affected depositors. 2. Coordination and cooperation among financial institutions 3. Stable operation by payment and settlement systems 4. Market wide business continuity arrangements 16
Closed Offices and Temporary Offices 300 branches Number of Closed Offices 60 Number of Temporary Windows and Offices branches Iwate 250 50 Miyagi Fukushima total 48 total l45 total l45 total 41 total 41 200 40 150 100 50 0 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sources: FSA, BOJ. 29 30 29 29 26 29 total 20 20 6 11 10 total 6 9 9 13 13 7 5 7 8 7 1 1 2 0 5 2011/ 3/11 3/13 3/20 3/27 4/3 4/10 4/17 4/24 ~12 ~19 ~26 ~4/2 ~9 ~16 ~23 ~30 17
Ensuring Provision of Cash Services BOJ Current Account Balances held by Financial Institutions Volume of Cash Provision from BOJ to Financial Institutions 1,600 Feb-11 = 100 450 net cash withdrawal /BOJcurrentaccountbalance 1,400 Disaster-Stricken Area Non Disaster-Stricken Area 400 3/11 1,200 3/11 350 300 1,000 250 800 200 600 150 400 100 50 Disaster-Stricken Area Non Disaster-Stricken Area 200 0 0 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11-50 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Source: BOJ. 18
Ensuring Provision of Cash Services (cont) Cash Withdrawals by Depositors who Lost Deposit Certificates or Bank Passbooks under the special financial measures to assist disaster areas 7.0 billion yen 6.0 Iwate Miyagi total 5.6 total 5.8 total 5.9 total 5.9 total 6.0 5.0 Fukushima total 5.0 1.7 1.7 1.7 1.8 1.8 4.0 total 3.8 13 1.3 0.9 3.0 2.0 2.6 2.9 31 2.9 3.0 3.0 3.0 3.1 1.0 total 0.2 0.8 1.0 1.1 1.1 1.1 1.2 0.4 0.0 2011/ 3/11-12 3/13-19 3/20-26 3/27-4/2 4/3-9 4/10-16 4/17-23 4/24-30 Source: BOJ. 19
Private Sector s Responses (cont) 1. Maintaining provision of cash services Recovering offices and opening temporary windows. Supply of cash to affected depositors. 2. Coordination and cooperation among financial institutions 3. Stable operation by payment and settlement systems 4. Market wide business continuity arrangements 20
Interbank Arrangement for Cash Withdrawal Area of relocation Disaster area 1. Requests cash withdrawal and presents ID 2. Forwards request for cash withdrawal B s depositor Paying financial institution B Accountholding financial institution B 4. Pays out cash 3. Permits cash withdrawal and sends funds 21
Private Sector s Responses (cont) 1. Maintaining provision of cash services Recovering offices and opening temporary windows. Supply of cash to affected depositors. 2. Coordination and cooperation among financial institutions 3. Stable operation by payment and settlement systems 4. Market wide business continuity arrangements 22
Private Sector s Responses (cont) 1. Maintaining provision of cash services Recovering offices and opening temporary windows. Supply of cash to affected depositors. 2. Coordination and cooperation among financial institutions 3. Stable operation by payment and settlement systems 4. Market wide business continuity arrangements 23
4. LESSONS LEARNED 24
Assessment of the Responses to the Disaster 1. Communication methods (priority and satellite phones) were e in place pace with wt branches in disaster dsaste areas and the government. 2. In house power generating facilities enabled business continuity at branches in disaster areas. 3. Staffing arrangements were effective for business continuity at the Head Office. 4. Prompt responses and information management by setting up the Disaster Management Team. 25
Issues for Future Work 1. Review severity and scope of the risk scenarios Incorporate severe and extensive damages. Natural Terrorist Disasters Attacks (Earthquake) Pandemics (Pandemic Influenza) NBC * Attacks * Nuclear, Biological and Chemical Accidents (Fire, Explosion) ) Hardware/ Software System Failure 26
Issues for Future Work (cont) 2. Enhance effectiveness of BCP Securing Managerial Resources Power, water and Facilities i Human resources telecommunication Back up systems, sites Alternative Sources e.g. capability of In- house power generating facilities Staff assignment 27
Issues for Future Work (cont) 3. Cooperation among relevant parties Ensure consistency of arrangements across relevant parties. Industry wide BCP. Date Risk Scenario Participants 26 Nov 2010 Outbreak of pandemic influenza 143 Financial institutions and BOJ 5Dec 2012 Earthquake hits capital Tokyo 155 Financial institutions, BOJ and FSA 28
THANK YOU 29