Trust Banks: Understanding How They Facilitate Transactions

A trust bank is an organization that allows its customers to transact with each other through contracts known as trusts. The bank acts as a trustee in such transactions and transfers assets from one customer/client (known as the settlor) to another (known as the beneficiary) according to the terms of the trust agreement.

Summary

• A trust bank allows its customers to transact with each other through contracts known as trusts.
• Japan’s trust banks offer banking/financing services along with investment-related services such as asset management.
• Mitsubishi UFJ Trust and Banking (MUTB), one of Japan’s largest trust banks, currently manages $370bn in assets.

Trust Banks in Japan

Many countries have trust banks or offer trust banking services, but Japan has one of the largest and most well-established trust banking industries in the world. Japan’s trust banks are financial institutions that combine banking/financing services with investment-related services such as asset management and miscellaneous services, including pension plan design and management, real estate brokerage, and appraisal services for both corporate and individual banking clients.

Trust banks in Japan were separated from bank trust departments during the early 1960s to bridge the gap between banks and securities firms. Currently, Mitsubishi UFJ Trust and Banking (MUTB) is one of the country’s largest trust banks with $370bn in assets under management.

History of Trust Banks in Japan

Japan set up its first secured bonds trust system in 1905 when it enacted the Secured Bonds Trust Act. The legislation allowed large banks and financial institutions to trade bonds with each other. The government-backed project was a key factor behind the large capital inflow into Japan in the early part of the 20^th century. The capital inflows enabled the country to become a military and economic superpower in the Asia-Pacific region.

In 1906, the Tokyo Trust Company was established to help households and small businesses mobilize funds and invest in the financial markets. In 1921, the number of trust banks totaled more than 400. Until then, the government allowed the banks to largely govern themselves. In 1922, Japan passed the Trust Act as the governing law for trusts and the Trust Business Act to protect the settlors and beneficiaries of the trusts.

Functions of Trust Banks in Japan

Trust banks in Japan combine banking/financial services with investment-related services for both corporate and individual clients. In addition, the banks also provide miscellaneous services such as pension plan design and management, real estate brokerage, and other services. They are able to access not only the expanding market of direct financing but also the traditional market of indirect financing.

The diversity of operations and services offered by Japan’s trust banks can be outlined by the following graphical description:

Additional Resources

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