Press Conference by FSA Commissioner Takafumi Sato
June 30, 2008
[Opening Remarks by FSA Commissioner Sato]
Good afternoon. Please ask me questions.
[Questions and Answers]
I would like to ask you about the line-up of the FSA staff for the new program year. Last week, on June 27, an informal notification was made regarding the appointment of senior FSA officials. What did you have in mind when deciding the personnel transfers for the new program year? You will continue to serve as FSA Commissioner, so could you tell me about the challenges and plans for the new year?
I will talk about the personnel appointments first. As you know, the FSA (Financial Services Agency) has separate bureaus responsible for three functions, namely, planning of regulatory frameworks, inspection of financial institutions and monitoring of various market transactions-I think that the inspection and monitoring are very closely related - and supervision of financial institutions. I believe that it is increasingly important for these bureaus to enhance their cooperation and function in an integrated manner. In terms of organization, the FSA consists of the main body of the FSA in a narrow sense, which comprises the internal bureaus, and the Securities and Exchange Surveillance Commission (SESC). Cooperation between the internal bureaus and the SESC is also becoming increasingly important. The reason for the increased need for cooperation is that, as shown by the subprime mortgage problem, financial crises of the 21st century are highly likely to start in and spread from the market. Therefore, we need to monitor the market properly, identify major market developments and reflect the findings in our inspection, supervision and planning of regulatory frameworks in a timely manner. The FSA aims to foster a collective intuition concerning the market, or "market sense," in order to ensure effective regulation. This is why we are enhancing our internal cooperation. With this in mind, I have made personnel appointments from the viewpoint of choosing the right people for the right posts, taking into consideration individuals' levels of knowledge, experience and professional expertise.
Now, I will talk about our achievements in the past year and the challenges for the coming year. Over the past year, we have handled three broad themes, namely, strengthening the competitiveness of Japan's financial and capital markets, better regulation, which may be regarded as part of the strengthening of the market competitiveness, and response to the global market turmoil triggered by the subprime mortgage problem. As you know, the FSA has three major administrative purposes, namely, stabilizing the financial system, enhancing the protection of users and their convenience and establishing a fair and transparent market. In the new program year, we will strive to contribute to achieving these purposes. I believe that we have made substantial progress with regard to all of the themes I have mentioned; whether it be strengthening the competitiveness of Japan's financial and capital markets, better regulation or response to the subprime mortgage problem, and I feel that some effects have been achieved. Although I believe that appropriate measures have been taken against the subprime mortgage problem, we will have to deal with all of these themes properly in the new program year. Regarding the strengthening of the competitiveness of the financial and capital markets and better regulation in particular, we are now at a stage in which we should make sustained, enhanced efforts, so we will continue to devote ourselves to these tasks. Of course, we will also engage in various individual initiatives and deal with various specific problems over the coming year in a timely and appropriate manner.
I will ask you about Ashikaga Bank, which has been nationalized on a provisional basis. Tomorrow, this bank is scheduled to make a fresh start as it sheds the status of a bank under special public management. How do you feel as you look back at the period since its nationalization in November 2003? Also, what are you hoping for from the new Ashikaga Bank?
As you know, Ashikaga Bank in November 2003 reported to the government that its debts would exceed its assets and filed for bankruptcy. The government concluded that it was essential to maintain this bank's financial intermediary function in Tochigi Prefecture and surrounding areas and nationalized it on a provisional basis in an arrangement known as special public management under Item 3, Article 102 of the Deposit Insurance Act following deliberations held by the Financial System Management Council. Under a new management team, Ashikaga Bank has promoted drastic management reform, provided assistance for the rehabilitation of small and medium-size enterprises and made various efforts to improve its own business operations.
As a result, Ashikaga Bank succeeded in increasing the number of corporate customers, increasing healthy loans and reducing non-performing loans through assistance for small and medium-size enterprises. The bank's non-performing ratio, for example, declined from 20.6% at the end of March 2004 to 4.5% at the end of March 2008. In addition, in terms of profit-generating capability, the bank earned 40 billion yen in annual net profits from core banking business in real terms, thus acquiring the capability to earn profits on a fairly stable basis. Furthermore, its excess of debts over assets has declined substantially, from 679 billion yen at the end of March 2004 to 263.7 billion yen at the end of March 2008, indicating that the measures I mentioned have produced results steadily. Thus, I believe that Ashikaga Bank has met the major goal of exercising the financial intermediary function on a sustained basis and minimizing the public financial burden. These achievements have been made mostly as a result of efforts by the bank's management team led by president Ikeda and its employees.
Tomorrow, on July 1, all outstanding shares in Ashikaga Bank will be transferred from Deposit Insurance Corp. to Ashikaga Holdings Co., marking the end of the nationalization and the bank's fresh start as an ordinary regional bank. Ashikaga Holdings, which will have Ashikaga Bank under its wing, has indicated the policy of retaining the management policy of the management team that led the bank during its nationalization and placing management emphasis on pursuing the relationship banking business model and securing the sustainability of its business.
For me personally, I have been involved in the Ashikaga Bank issue for about five years, including one year during which I oversaw the inspection of the bank - which led to the provisional nationalization - as the Director General of the Inspection Bureau, and three years during which I served as the Director-General of the Supervisory Bureau and one year as the FSA Commissioner. Now that we have arrived at a final solution, I feel somewhat emotional about this matter.
As you know, we engaged in the process of selecting the winning bidder for Ashikaga Bank from three viewpoints: ensuring the bank's sustained financial intermediary function, securing the sustainability of the bank's business and minimizing the public financial burden. After all, we arrived at a solution that allows us to expect Ashikaga Bank to continue its business with a certain level of profit-generating capability, enables the bank to exercise the financial intermediary function on a sustained basis in Tochigi Prefecture and surrounding areas, and entails no financial cost for the taxpayer. I believe that this is a fairly good achievement.
I understand that at that time, there were requests from local interests for bailing out Ashikaga Bank by providing additional capital to it under Item 1, Article 102 (of the Deposit Insurance Act). Now that this kind of solution has been reached after a five-year period of nationalization, do you still believe that the application of the Item 3 provision was the best option available?
We regulators do not have discretion as to whether the Item 1 provision or the Item 3 provision should be applied. Sometimes, people make arguments based on a misunderstanding regarding this point. Since Ashikaga Bank was in a state of substantial excess of debts over assets, the only choice was either applying the Item 2 provision or the Item 3 provision. Of these two options, we chose the Item 3 provision as we attached importance on the continuation of the bank as a corporation and the continuation of its business with due consideration of its large role in Tochigi Prefecture and surrounding areas. This was not a choice between the Item 1 provision and the Item 3 provision.
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