Press Conference by the Minister for Financial Services

(Excerpt)

3 September, 2002

Q.

Yesterday, the project team of the Financial System Council finalized its report on the measures to ensure the stability of the payment and settlement system. I imagine that what is poised to be a focal issue in the future is whether or not all financial institutions will introduce a new type of deposit, that is, a ''zero-interest demand deposit to be used for settlement purposes.'' But the project team's report simply states that ''introduction is strongly anticipated,'' which sounds like such an introduction won't be obligatory. Could I please ask your opinion on this point?

A.

What this means is that the team concluded that such an introduction should not be made obligatory. As it is naturally expected that some financial institutions would wish, for example, ''Well, we are going to build up a business model that would enable us to cope without resorting to full protection,'' the team presumably decided that it would go too far to make it obligatory, taking into account the principle of free enterprise and respect for autonomous corporate decision-making.

Q.

In the viewpoint of protecting the settlement system, wouldn't it be questionable whether the whole arrangement would function well as a safety net if some financial institutions introduced such a deposit type while others did not?

A.

The report presupposes that financial institutions which decide not to introduce such a type of deposit would still need to take alternative measures to ensure that settlement should go smoothly.

As the issue of soundness of financial institutions is an entirely separate matter, I would like it to be understood that those two issues are not discussed in any linked fashion in the report, either.

Q.

Does that mean that it would be wrong to assume that, in reality, all financial institutions will virtually be required by, say, administrative guidance, to introduce it?

A.

Whether each and every one of them will actually go in that direction is not something I would prejudge, because their respective management strategy will also be at issue there. However, I do expect that they will by and large decide to take advantage of the framework of full protection, so to speak.

Q.

On the subject of this revision of the so-called pay-off scheme, some argue that such a revision would defeat the scheme's original purpose of prompting financial institutions to make further management efforts by boosting competition through what is called the all-out lifting of the full protection system. What do you think of such an argument?

A.

I doubt that it is how things would turn out. If that is the case, one would think that criticism would not be raised against this proposal -- but the mainstream opinion still largely wishes to have the current arrangement unchanged, according to the general press coverage. I think that serves as the paramount evidence to substantiate my view. In other words, it's unlikely that the thrust of the structural reform measures will be weakened as a result of this.

Q.

As the report of the Financial System Council also notes, most of what is currently on the discussion table already began to be talked about around 1999, which, as I see it, suggests that it was already recognized as an issue back then. Well, the same debate surfaced again three years later and has finally reached a conclusion. This makes me wonder what was going on in the interim -- is it the case that the authorities were neglecting their homework?

A.

No, it's not. The fact is that the issue was simply not given particular recognition as everything was also protected altogether. As it was decided that blanket protection previously given should be removed, the focus of the debate was consequently shifted to how to deal with the settlement issue. That is, it was a matter of course that the issue would have to be discussed eventually.