Provisional translation

Press Conference by FSA Commissioner Takafumi Sato

(Excerpt)

July 24, 2008

[Opening Remarks by FSA Commissioner Sato]

Good afternoon. I do not have any particular statement to make.

[Questions and Answers]

Q.

I will ask you about an earthquake that struck the Tohoku region soon after midnight. As far as we know, there has been no major impact on the financial system. Has the earthquake affected the operations of ATMs or caused other problems? Also, what action has the FSA (Financial Services Agency) taken?

A.

I would like to offer my sincere sympathy to the people living in the regions hit by the earthquake. Although some branches of financial institutions in Iwate, Aomori and other prefectures in the Tohoku region have been damaged by the earthquake, I understand that the banking operations have not been significantly affected. ATMs of some financial institutions malfunctioned immediately after the earthquake but have now returned to normal operation, as I understand it. Since immediately after the earthquake, the FSA has been gathering information to keep track of the situation. We will continue to closely monitor the situation in cooperation with the Tohoku Finance Bureau.

In the event of a disaster large enough to merit the application of the Disaster Relief Act, the Local Finance Bureau and the Bank of Japan's regional branch in the relevant region usually ask individual financial institutions to take extraordinary measures in order to facilitate withdrawals by disaster victims, for example. At this time, however, such a request has not been formally made. Of course, we are hoping that individual financial institutions will take steps to facilitate customer convenience at their own discretion.

Q.

The other day, a system problem occurred at the TSE (Tokyo Stock Exchange), leading to the suspension of futures trading. This was the third such problem to hit the TSE this year, and this is a serious matter from the viewpoint of the reliability of the market. Could you tell me what action the FSA will take and how you view this matter?

A.

On July 22, Tuesday, a problem occurred in the TSE's trading system, leading to the suspension of trading in derivatives products such as the TOPIX futures and government bond futures. This was a regrettable incident from the viewpoint of ensuring the reliability and smooth operation of the exchange and the financial product market. We have ordered the TSE to submit a report under Article 151 of the Financial Instruments and Exchange Act. The TSE must analyze the cause of the problem and take appropriate measures to prevent the reccurence of similar problems based on the analysis. In light of the results, we will follow up on the status of improvements.

Given the importance of the financial infrastructure provided by exchanges, it is regrettable that the TSE has experienced three system problems so far this year. As for the latest problem, I have a feeling that sufficient tests and dry runs may not have been conducted prior to the exchange's system upgrade, so I think that it is necessary to manage events like a system upgrade more seriously and with a sense of urgency.

Q.

Last week through this week, U.S. banks announced their financial results. There are a variety of views regarding the financial health of U.S. banks. How do you assess their financial results?

A.

The financial results announced by major U.S financial institutions last week through this week showed that subprime-related losses and losses caused by the financial market turmoil were recognized in the most recent fiscal quarter, and that such losses continued to drag down their business performances, leading some of them to post net losses. Thus, the financial results have provided evidence of the seriousness and deep-rooted nature of the subprime mortgage problem.

As I have said on several occasions, there are both positive and negative factors, and I think the financial results reflect some of the negative factors, namely the deterioration of the U.S. housing sector, the declining housing prices, the growing number of unsold houses, and the increasing cases of mortgage delinquency and default. This has reminded me that it will take more time before the turmoil caused by the subprime mortgage problem subsides.

Nevertheless, as I have been saying, there are also positive factors. A cycle is being established in which major financial institutions recognize and disclose their respective losses on a quarterly basis and raise additional capital if they find themselves to be undercapitalized. The financial results for the April-June quarter may be regarded as part of this cycle. I think that we are continuing to see both positive and negative factors, and the FSA will keep a close watch on future developments with a high level of vigilance, even though Japan's financial system and market are relatively stable compared to those in the United States and Europe.

Q.

I have an additional question related to the financial results. In the announcement of their latest results, U.S. financial institutions have apparently made progress in disclosure regarding securitized products, in line with the disclosure rules set by the Financial Stability Forum (FSF). Japan, ahead of other countries, provided disclosure regarding securitized products in the announcement of the financial results for the fiscal year ended in March. Have you noticed anything positive or negative in U.S. financial institutions' disclosures in their announcements of financial results?

A.

I am sorry to say that I have not yet examined the disclosures by U.S. financial institutions in their announcements of financial results, last week through this week, in relation to the leading disclosure practices cited in a report issued by the FSF. So I do not have sufficient data to answer your question. However, I can say this: The leading disclosure practices are based on an international consensus and agreement, as their adoption has been clearly set forth as a requirement under the agreements reached at the FSF and at a meeting of the G-7 (the finance ministers and central bank governors of the Group of Seven nations). Therefore, financial statements failing to meet this requirement sufficiently would probably draw criticism.

(End)