In times of crisis, nations look to banks to provide stability. In Japan, though, banks’ equity exposures actually intensify stock wobbles. Domestic equity holdings account for 35 to 40 per cent of tier one capital for the three biggest lenders, giving their shares a beta (a measure of sensitivity to general market movements) a quarter higher than the global average. Far from being shock absorbers, the banks are amplifiers.

The system of cross holdings is traditional in Japan (as in Germany); in the post-second world war keiretsu system, banks were at the centre of large industrial groups. The financial-industrial matrix – banks and clients supporting each other – was a source of strength as long as markets kept rising. Falling stock prices, though, caused unrealised losses, which now have to be deducted from tier one capital. In the wake of the Nasdaq crash, the government passed a law in 2001 capping financial institutions’ shareholdings at 100 per cent of Tier 1, while strongly encouraging banks to go lower. At Mizuho, for example, the ratio of equity holdings to Tier 1 fell from 141 per cent to 49 per cent between 2002 and 2010.

The holdings are, therefore, not as hazardous as they used to be. CreditSights estimates that the Topix would have to drop below 800 for the remainder of March – it closed at 818 on Wednesday – to reduce megabanks’ net profit for the period. But they add a needless layer of risk, while compromising lending decisions. Weak markets, of course, mean that banks drag their heels in disposing of their stocks: Mizuho announced last autumn that it had completed less than 2 per cent of its targeted portfolio reductions by March 2013. But this week’s whipsawing markets show that the holdings have to go. Japan’s rebuilding must include their dismantling.