Provisional translation

Press Conference by FSA Commissioner Takafumi Sato

(Excerpt)

September 29, 2008

[Opening Remarks by FSA Commissioner Sato]

I have one matter to report to you. Today’s meeting of vice ministers was attended by the Prime Minister, the Chief Cabinet Secretary, and Deputy Chief Cabinet Secretaries Kondo and Konoike. As an instruction regarding the conduct of work at government ministries and agencies, the Prime Minister said that civil servants should place priority on speed, and report unfavorable information quickly to their superiors. He also said that civil servants must devote themselves to serving national interests and must never disavow responsibility for doing what they must do. In addition, the Chief Cabinet Secretary instructed government ministries and agencies to cooperate with one another in performing tasks.

[Questions and Answers]

Q.

Yesterday, negotiations between the U.S. government and Congress were concluded with a broad agreement on a bill for financial stabilization measures. The bill includes a variety of provisions, such as a salary cap for executives of financial institutions from which the government purchases troubled assets and the establishment of an oversight committee. Could you tell me how you view this bill and what impact you expect it to have on Japan’s financial and capital markets, as well as the global markets?

A.

On September 28, U.S. Eastern Time, U.S. Treasury Secretary Paulson and leaders of the U.S. Senate and House of Representatives announced a provisional agreement on a bill for financial and economic stabilization measures, and then the House Financial Services Committee announced a draft of the bill, as I understand it. This bill was worked out through energetic efforts by the U.S. government and Congress in pursuit of a solution in light of the stressful global financial conditions, so we welcome their provisional agreement.

As I understand it, this bill would be formalized after undergoing deliberations at the Senate and House of Representatives, I should refrain from offering any definitive assessment at this time regarding its possible impact on the global financial markets, including Japan’s markets, or the effectiveness of measures included in it. However, I expect it to contribute to an orderly unwinding of the excessive leverage that is the major cause of the ongoing global financial turmoil, so I hope that it will actually bring about such benefits. In this sense, the FSA (Financial Services Agency) hopes that this bill will be quickly enacted, leading to the stabilization of the U.S. and global financial markets.

Q.

I have another question regarding the United States. Washington Mutual, which is a regional financial institution, has gone bankrupt, and today, a British regional financial institution went bankrupt. How does the FSA view the possibility of the management of Japanese financial institutions being affected by this series of failures of regional banks in the United States and Britain? Is the FSA planning to conduct a fresh investigation into Japanese financial institutions’ holdings of stocks and bonds issued by U.S. regional financial institutions, for example?

A.

While the global financial markets have remained in a state of turmoil since last year, the U.S. real estate and housing market has also been slumping. As a result, concern is growing about the management conditions of U.S. regional financial institutions, whose provision of credit is concentrated on loans to the real estate and housing industries and on mortgage loans. Indeed, the bankruptcy at the end of last week of Washington Mutual, which is the largest savings and loan institution, marked the 13th failure of regional financial institutions in the United States this year. Also, earlier today, just before this press conference, there was a media report that Bradford and Bingley of Britain will be partially nationalized. I suppose that Bradford and Bingley’s provision of credit has also been concentrated to a substantial degree on the housing sector, mortgage loans and the like. In this respect, no Japanese financial institutions have adopted a business model whose exposure is concentrated on the housing sector or mortgage loans, and Japan’s housing sector has not undergone such a violent convulsion as that sustained by the U.S. and British housing sectors, so I do not think that a phenomenon like this suggests that the management of Japanese financial institutions will be seriously affected.

However, regardless of whether there is such a cause-and-effect relationship, it is obvious that stress remains in the global financial markets. This may impact the management of financial institutions in another way, by causing negative effects to the global economy, which may adversely affect the business conditions of companies borrowing from Japanese financial institutions. So, the FSA will maintain a high level of vigilance, keep a close watch on financial market developments and take appropriate actions, while strengthening cooperation with relevant authorities both in Japan and abroad.

As for Japanese financial institutions’ holdings of stocks and bonds issued by U.S. regional financial institutions, I would like to reply to your question in general terms. The FSA believes that it is important that financial institutions conduct risk management properly, while keeping in mind changes in the market environment. Based on this belief, we are holding hearings and exchanging information with individual financial institutions with regard to not only such holdings, but also their risk management status as a whole. In any case, we have not detected any evidence to suggest that the management of Japanese financial institutions may be seriously affected.

Q.

I understand that the U.S. bill for financial stabilization measures includes a provision that gives the SEC (Securities and Exchange Commission) the power to suspend the application of mark-to-market accounting. Do you think that Japan should also grant such power or that there is a need to take such a step? Also, does Japan have an institutional arrangement for suspending the application of such accounting?

A.

Your question concerns the situation in the United States that I mentioned earlier, and the final bill is scheduled to be enacted after undergoing deliberations at the Senate and House of Representatives, so I would like to refrain from making any comment at this time on specific measures included in the bill.

Generally speaking, accounting standards serve as a yardstick in the financial and capital markets, so I believe that there is a consensus that the importance of that role should be taken into consideration. I would like to refrain from making comments at this time on specific initiatives and measures related to this bill.

Q.

At the end of last week, a second trial court ruling was issued regarding Daiwa Toshi Kanzai. Could you tell me how you view this ruling and how the FSA will respond to it?

A.

It is regrettable that the government’s argument was not accepted in this case. We will consider how to respond while closely examining the ruling and consulting with relevant authorities. At this time, I would like to refrain from making any further comments.

Q.

The posts of the Minister of Finance and Minister for Financial Services have been combined - although this is slightly old news - and there is also talk of the possibility of re-integrating the administrative authorities over fiscal and financial affairs. What is your view on this matter?

A.

Given the recent financial crisis in the U.S. and global markets and the possibility of global financial developments producing a huge impact on Japan’s economy, it is important and increasingly necessary that relevant authorities in Japan closely cooperate not only with each other, but also with overseas authorities. In response to the increasing necessity, cooperation among Japanese authorities, and between them and overseas authorities has been strengthened. I understand that the Prime Minister has decided to combine the posts of the Minister of Finance and Minister for Financial Services with this situation in mind.

In any case, the FSA has been consistently striving to accomplish the three major objectives of financial regulation, namely: stabilizing the financial system; protecting investors and improving their convenience; and establishing fair and transparent financial and capital markets. Therefore we will continue efforts to ensure appropriate financial regulation while bearing in mind the purpose of the separation of the administrative authorities over fiscal and financial affairs.

Since the Ministry of Finance and the FSA were established as separate entities as part of the reform of central government ministries and agencies, they have been operating independently from each other. I believe that as the decision to combine the posts of the Minister of Finance and Minister for Financial Services is aimed at ensuring cooperation between the two independent government organizations under the supervision of Minister Nakagawa, there is no problem from the viewpoint of the separation of the administrative authorities over fiscal and financial affairs.

(End)