Press Conference by the Minister for Financial Services

(Excerpt)

12 July, 2002

Q.

The measures to promote the merger of local financial institutions announced on the day before yesterday indicated that the injection of additional public funds would be considered, in order to strengthen capital base. In the past, you stated that public funds would be injected only in the event of a financial crisis. This may be interpreted as a policy change by the financial administration. What is your view on the positioning of the injection of public funds?

A.

We have not changed our point of view in that it is unnecessary to inject public funds under Article 102 of the Deposit Insurance Law as a measure to tackle a financial crisis under the current circumstances. If we inject public funds, we believe that it will result in a moral hazard among financial institutions that are making serious efforts to execute management with a sense of tension and improve their financial soundness. In a broad sense, it might even undermine their profitability.

We are advocating policy a measure to strengthen capital base, as part of measures to promote mergers. At this stage, it is merely one of the subjects under consideration, meaning that we have not drawn any conclusions yet. Mergers are costly, due to the retirement allowances that have to be paid in conjunction with restructuring, the loss associated with the consolidation of branches and the consolidation of the systems and so on. As they might have to be addressed at once, as quickly as possible, to make the mergers effective, the Financial Services Agency (FSA) intends to facilitate the mergers process. Therefore, it is not policy change.

Q.

Today, the Roundtable Committee on the Visions for the Future of the Financial System and Administration will be announcing a report. Please elaborate on the key point from the perspective of you and how they will be reflected in the Government's basic policies.

A.

Through the meetings of the Roundtable Committee, I explained the thoughts that occurred to me while performing my daily duties. And the experts neatly defined the issues concerning those thoughts.

In regard to the overall structure, firstly, the report presents a vision. Then, it discusses the issues involved in building a bridge between the current situation and the vision, and the non-performing loans (NPL) problem is defined within that context. Getting down to the specifics, what kind of problems will intermediary financial institutions, companies and individuals face? This has been neatly defined, to the greatest extent possible. The report concludes that a coexisting financial system with the market function set at its core may be desirable.

The FSA plans to elaborate the report and incorporate it as the formal vision of the Government.