Considering the potentially high price volatility of stocks as well as the fact that cross-shareholdings are not held for portfolio investment purposes and cannot be sold in a timely manner, these shareholdings may have a serious and unpredictable impact on banks’ business given their limited capital base. Banks can protect their business from stock price fluctuations by reducing crossshareholdings.
Moreover, by reducing the allocation of capital to stock price volatility, banks can free up some of their capital to support firms. It is worth noting that banks have made steady progress in reducing their exposure to stock price fluctuations. In fact, the total shareholdings of banks fell by 48 percent to 21 trillion yen over the past two years.