Press Conference by the Minister for Financial Services

(The Project Team for Emargency Strategy for Financial Sector)

(Excerpt)

3 October, 2002

We just finished the first meeting of the Project Team for Emergency Strategy for Financial Sector. As it was the first meeting today, I talked about my view on existing problems with other members. Everyone -that is, the members of the private sector and top officials at the Financial Services Agency (FSA) - exchanged their opinions as to what kind of stance should be taken to tackle these problems from their respective positions.

The speech that I made upon establishing the Team is in writing here, so let me read it out to you.

Upon the latest reshuffling of the Cabinet, the Prime Minister declared that he would strengthen the policies to accelerate structural reform over the next six months, and at the same time, indicated his policy to eliminate uncertainties marring the Japanese economy, tackle and overcome deflation based on the unity between the government and the Bank of Japan (BOJ), and completely settle the non-performing loan (NPL) problem in FY2004. Considering that one of the biggest uncertainties about the Japanese economy is the problem of the financial system, it is indispensable to further evolve the financial administration and change anything that needs to be changed in order to fulfill the Prime Minister's policy.

For this purpose, we decided to establish the Project Team which will borrow outside experts' knowledge and hold intensive discussions. It is difficult to say that the market's confidence is strong, not only in the financial system but also in the FSA. In consideration of these circumstances, I would like all of you here, who have been appointed as special advisors, to discuss frankly about the measures to settle the NPL problem by FY2004 in line with the Prime Minister's policy, and to restore public confidence to the financial sector, including depositors, investors and borrowing companies.

Please bear in mind that while banks engaged in global banking are required to strengthen their constitution based on the thorough promotion of competition, regional financial institutions targeting small- and medium-sized enterprises (SMEs) are urged to establish a strong safety net separate from that, and please discuss actively about both of these issues. In order to accelerate structural reform, the reform of four areas, namely, the reform of the financial system, the tax reform , regulatory reform, and the reform of fiscal expenditure must be carried out en bloc more quickly, on a larger scale, in a more easy-to-understand manner. As the Basic Policies last year defined that the fundamental reform of the NPL problem is the first step towards economic recovery, the reform of the financial system should be the top priority challenge. I earnestly hope the discussions in the Project Team will clarify the roadmap to achieve that.

That was my personal view on the problems. The members expressed their opinions about my view in an extremely active manner. Basically, the discussions will take place based on brainstorming, and ultimately I will use them as the foundations for making policy judgments. For this reason, I will refrain from publicizing on who said what on each time in the course of intensive discussions. Considering that it was the first meeting, I will give you a rough idea about the direction of the discussions. Many members expressed their strong belief that now we are in an extremely crucial time for the Japanese economy to solve the NPL problem. We have the chance to solve this significant problem. Conversely, however, there is a sense of crisis in that we might have to face a serious problem if we let this chance slip by. Based on the previous experiences, the members stated -including technical remarks, as a matter of course- that they would like to solve the problem by engaging in activities in an extremely positive manner, based on activism.

Since my assumption of office, I have explained that the problem should be broadly divided into three questions. Firstly, whether assets are assessed strictly? Secondly, whether the capital base is sufficient? Thirdly, whether bank governance is sufficient? The members agreed to this approach as the general direction of discussions. So we will engage in discussions, starting with the question of asset assessment from next time and broadening discussions step by step. We have agreed to interview experts and the parties concerned if necessary and have deeper discussions from next time onwards.

In addition, Senior Vice Minister Tatsuya Ito will be organizing various matters substantially as the secretary-general. That is all I have to report for now.

Please understand that, as the point is to discuss things at a burst, I must regrettably refrain from having a press conference every time a meeting is held, because talking about what kind of discussions were held every time might induce various speculation. I will summarize the discussions in the form of an interim report in about two weeks, and make a final report in four weeks. In the meantime, even if you ask members any questions, they may have no comments. I hope the reporters will understand our position and everyone will have discussions as well.

Q.

Could you please explain in further detail about defining the problem separately for banks that engage in global banking and for regional banks, as you just mentioned?

A.

As I have always been saying, banks and companies in a globally competitive environment are facing a tough situation in the midst of globalization, but should nevertheless become stronger amid the promotion the competition. However, the so-called relationship-banking -specifically, regional financing and SME financing- is common to all countries in the world, and not all companies are being managed by heeding the return on asset (ROA) and the return on equity (ROE); they have a different, more life-oriented approach in certain aspects, which is the real condition of all countries. As I have always believed that discussions would become confusing unless they are clearly distinguished, I intend to reflect this in the financial administration in practice. I have made this address based on such perspective and viewpoint.