Provisional translation

Press Conference by FSA Commissioner Takafumi Sato

(Excerpt)

December 1, 2008

[Opening Remarks by FSA Commissioner Sato]

I do not have any particular statement to make.

[Questions and Answers]

Q.

The Democratic Party of Japan (DPJ) has indicated it will not prolong deliberations on the bill for revising the Act on Special Measures for Strengthening Financial Functions, but will allow the House of Councillors to take a vote on it at an early date. It is said that this bill is likely to be enacted in mid-December at the earliest. I understand that the bill was drafted on the assumption that capital would be injected into financial institutions in December. When do you expect that capital injection will actually be made if the bill is enacted in mid-December following the DPJ’s compromise?

A.

As the bill is still under Diet deliberation, I will speak on this premise. As you know, this bill is aimed at supporting struggling regional economies and small- and medium-size enterprises (SMEs) by strengthening the financial intermediary function of financial institutions through governmental capital participation. As I believe that strengthening the financial intermediary function is a policy task of very high priority, I hope that this bill will be enacted as soon as possible.

As for the timing of its enactment, I would like to refrain from making comments, as it is still under Diet deliberation. If the bill is approved, we will quickly work on relevant cabinet orders and ordinances so as to put it into force as soon as possible and strive to ensure that all relevant parties are familiar with the new legal framework so that the bill can be enforced smoothly.

In any case, it is important that financial institutions actively exercise their financial intermediary function in an appropriate manner to help many SMEs that are concerned about the prospect of fund-raising under these severe economic conditions. From the viewpoint of supporting the exercise of that function, I believe that the establishment of a framework that enables governmental capital participation when necessary will be very significant. In order to provide a sense of security in this respect, I believe that a quick enactment and enforcement of this bill is important.

Q.

There has been a media report that Juroku Bank, a regional bank, plans to provide management support, including capital support, to Gifu Bank, a second-tier regional bank. Although this matter concerns an individual bank, could you tell me how you feel about it? Also, please tell me how you expect the realignment of regional banks to proceed if the global financial crisis continues to affect the real economy.

A.

I understand that Juroku Bank and Gifu Bank announced today that they will start negotiations about plans for the provision of capital support from Juroku Bank to Gifu Bank and a comprehensive business tie-up between them. As I always say, I would like to refrain from making comments on specific cases like this from the standpoint of the FSA (Financial Services Agency), as capital policies and business tie-ups are based on management decisions made by individual financial institutions. At any rate, I recognize this deal as a forward-looking move, as the two banks have expressed their intention to use the planned capital support and comprehensive business tie-up to stabilize and facilitate regional finances, expand their profit bases and improve their management efficiency.

As for your question regarding the prospect of the realignment of regional banks, I understand that realignment moves such as business integration are based on management decisions made by individual financial institutions, so I should refrain from making comments in order to avoid providing a pre-determined perspective.

In any case, I believe that it is important that financial institutions make conscientious efforts to establish management strategies and strengthen their management foundation from a long-term perspective, thereby actively exercising their financial intermediary function in an appropriate manner and on a sustained basis.

Q.

In an NHK television program called Sunday Debate, which was aired Sunday (November 30), Mr. Hosoda, secretary general of the Liberal Democratic Party, said this in relation to the bill for revising the Act on Special Measures for Strengthening Financial Functions: “I am wondering whether regional banks and ‘shinkin’ banks can really keep themselves going beyond the end of the year. There is the risk that they could fail to do so.” How do you view these remarks, which he made during a live broadcast?

A.

Since I did not watch that television program, it is difficult for me to directly comment on his remarks. In any case, as I always say, maintaining the stability of Japan’s financial system and improving its resilience is one of the major objectives of the FSA’s financial regulation. From this viewpoint, the FSA regularly examines the situations of various types of financial businesses and the status of individual financial institutions’ financial soundness and risk management. We maintain communications with them through our onsite inspection and offsite monitoring as well as daily supervisory processes. Through its efforts to identify the current situation in a timely manner, the FSA has been encouraging financial institutions to take necessary action quickly, and I believe that this regulatory arrangement has been well established in the relationship between the supervisory authorities, including the FSA and local Finance Bureaus, and supervised financial institutions.

Compared with when financial institutions faced a very serious bad-loan problem, the soundness of their financial conditions has considerably improved now. We should not let down our guard as they are starting to enter this difficult phase just at a time when they have achieved such improvement. In any case, the FSA will conduct its regulation so as to ensure the cycle of timely identification of problems leading to the quick improvement efforts that I mentioned earlier.

Q.

I would like to ask you further about this matter. As these remarks were made by the secretary-general of the ruling party, many people will take them seriously. As he said in a program broadcast nationwide that some regional banks and “shinkin” banks may fail to keep themselves going beyond the end of the year depending on the circumstances, I fear that in an extreme case, his remarks could have a considerable impact on Japan’s financial system, triggering bank runs. Please give me your assessment of the current situation: whether there is the possibility of some financial institutions failing to keep themselves going beyond the end of the year.

A.

As I did not watch that television program, I do not exactly know what he meant by the expression “keep themselves going beyond the end of the year.” However, similar expressions are often used by business managers, including SME managers, such as when they say that they do not know “whether we can secure sufficient funds to keep us going” beyond the end of the year, or beyond the end of the fiscal year. The condition of Japan’s real economy - the condition of regional economies and SMEs - is very severe. Therefore, business managers apparently speak of the difficulty of keeping themselves going beyond the end of the year. However, we have taken measures to keep the financial system stable, and those measures have now been well established, as I said earlier.

Q.

There has been a media report that an employee of Bank of Tokyo-Mitsubishi UFJ purchased shares in an unlisted company from a business client and earned profits totaling tens of millions of yen by selling some of them. First, has the FSA grasped any facts regarding this matter? Secondly, while some banks prohibit their employees from engaging in stock transactions in principle under their internal rules, what is the FSA’s view on the involvement of employees of financial institutions in stock transactions?

A.

I read that media report just before coming here. I would like to refrain from directly commenting on this case, as it concerns a transaction made by an employee of an individual financial institution.

Generally speaking, I believe that it is important that financial institutions establish appropriate internal control systems that would not invite social criticism in light of the public nature of their businesses, and properly conduct business operations under such systems.

(End)