Deposit insurance reform in Japan boosts market discipline and interest rates sensitivity.
The Japanese government changed deposit insurance rules in 2002, limiting coverage for time deposits. This change helped increase the impact of interest rates and deposit amounts on bank risk. Risky banks saw higher interest rate differences between large time deposits and regular deposits. This means the reform made banks more accountable for their risks. However, the "too-big-to-fail" policy still influenced interest rates and deposits, somewhat reducing the positive effects of the reform.