Press Conference by the Commissioner

(Excerpt)

26 July, 2001

Q.

Yesterday, Finance Minister Masajuro Shiokawa told Japanese Bankers Association (Zenginkyo) Chairman Yoshiro Yamamoto that the establishment of a Banks' Shareholding Acquisition Corporation, which is currently under discussion, constitutes an extremely important policy measure against falling stock prices. Mr. Shiokawa expressed his strong intention to finalize the plan and implement it as early as possible, and asked for the banking industry's cooperation in that context. Does the Japanese government regard the corporation as a solution to diminishing stock prices?

A.

We do not regard the Banks' Shareholding Acquisition Corporation as a solution to falling stock prices. As you may know, the corporation is considered necessary assuming that banks' shareholdings would be restricted, as we have previously explained. Banks must reduce the amount of their shareholdings to the level of their capital by 2004, which may be based on their Tier 1 capital or capital account -in either case, the figure would be more or less the same. This reduction is necessary because the risks associated with banks' shareholdings must be below a certain level, that is, within the banks' risk management capacity.

As we need to amend the Bank Law to restrict banks' shareholdings, our first step would be to submit a bill at an extraordinary Diet session.

In aggregate, banks would have to give up almost one third of their total shareholdings, probably by 2004. They would be able to sell such shares in the market, as a matter of course. Considering that major banks sold around 3.1 trillion yen worth of shares in the past year, they should be able to sell shares in the amount of about 10 trillion yen in 3 years. However, they would have to get rid of 13-14 trillion yen worth of shares if the aforementioned restriction on banks' shareholdings is imposed, which means that 2-3 trillion yen would be in excess of the market's absorbable capacity. We cannot forecast at this stage yet as to how much of such excess stocks could be absorbed through ETF or treasury stock disposal, or how much of such stocks could be processed by one of the facilities of the corporation, or put differently, acquired by the corporation. Taking these into consideration, although the stocks would be sold in the market under normal circumstances, having a Bank's Shareholding Acquisition Corporation as a safety net should prevent the market from suffering any negative impact in the event of any emergencies. Having such a safety net for emergency situations should eliminate the negative impact, and give a sense of security to the market. The idea of the corporation was derived in view of such a safety net, and it was in no way designed for the purpose of tackling the drop in stock prices. In the sense that it can eliminate the negative impact on the market, it may, as a consequence, help stabilize stock prices. However, it does not in any way aim to raise stock prices.