Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, December 10, 2010, from 11:16 a.m. to 11:34 a.m.)

[Opening Remarks by Minister Jimi]

I have two matters to report today.

The first matter relates to the Cabinet meeting.  Article 5 of the Act on Emergency Measures for Early Strengthening of Financial Functions (“Kinyu Saisei Hou”) requires that a summary of measures taken by the government to deal with failed financial institutions between April 1 and September 30, 2010 be compiled, approved and submitted to the Diet.  In a nutshell, there is a law requiring that measures taken to deal with failed financial institutions over the past six months be determined properly by the Cabinet and reported to the Diet.  The content of the report primarily is about the state of such activities as administrative actions involving management orders against the Incubator Bank of Japan (Nihon Shinko Ginko).  I clearly stated at the Cabinet meeting that the Financial Services Agency (FSA) will continue doing everything possible to further ensure the stability of Japan's financial system.

The meeting was followed by an informal gathering with Cabinet ministers.  Regarding news reports on the provisional payback percentage by the Deposit Insurance Corporation of Japan (DICJ) at 25 percent, a number of Ministers stated that this is an extremely low figure even for provisional payments.  If memory serves me correctly, a provisional calculation of what corresponds to the repayment rate for failed Kizu Credit Union-which had been subject to the protection of deposits in full-was ultimately 23 percent, whereas the provisional payback percentage is 25 percent for the Incubator Bank of Japan.  Of course, this is subject to change given that the payments are based on a rough estimate, but I have heard that it is an extremely low figure.  A comment was made to the effect that the management's responsibility is heavy to such an extent.  Also, two Ministers stressed that this problem stems from the application for a provisional license filed by the Incubator Bank of Japan on the day on which former Minister for Financial Services Heizo Takenaka and former FSA consultant Takeshi Kimura resigned from their respective positions.  You may remember that when the Chief Cabinet Secretary made an announcement on the Incubator Bank of Japan, there were talks about the Minister, the Senior Vice Minister, and the Parliamentary Secretary conducting an inquiry.  Such voices from Ministers and the people, and above all, public confidence, are important for financial institutions.  Especially since this issue dates back to the time when Mr. Takenaka served as Minister for Financial Services and Mr. Kimura served as consultant to the FSA, I have decided to establish in the FSA an inspection committee (inspection committee to examine administrative and other actions against the Incubator Bank of Japan) to restore confidence by properly revealing the facts to the general public.  I am eager to share this with all of you today.

Secondly, I went on an official trip to Kitakyushu City and Fukuoka City in Fukuoka Prefecture yesterday.  I exchanged opinions with executives of financial institutions and local Small and Medium-sized Enterprises (SMEs) about the situation in the region regarding business conditions and cash flows of SMEs and the SME Financing Facilitation Act, which is due to expire on March 31, 2011.  This Monday, I also had the opportunity with the Minister of Economy, Trade and Industry in Tokyo to listen to a wide range of opinions on the SME Financing Facilitation Act from a wide spectrum of people in the financial sector including various banking associations.  I also went to Osaka and Nagoya.  In the latest trip, I visited Kitakyushu City, which used to be one of the four major industrial zones and is home to an extremely large number of SMEs in the manufacturing sector. I then went to Fukuoka City, the central city of Kyushu.  In the exchange of opinions, I was told that although business is on the way to recovery, the pace of recovery is slowing down, and that the situation remains tough for SMEs as exemplified by concerns over the impact of the prolonged appreciation of the yen. There were also requests for economy-boosting measures and the postponement of the expiry of the SME Financing Facilitation Act.  The FSA will work to facilitate SME financing while taking such opinions into consideration, especially in the lead up to the year end, which is a costly time for corporate management in many ways.

Also, in my capacity as Minister for Postal Reform, I visited a post office in Kitakyushu City where I exchanged opinions with on-site staff and inspected the site and the circumstances.

I have nothing further to add.

[Questions & Answers]

Q.

On the topic of the SME Financing Facilitation Act just mentioned, you stated yesterday that policies would be decided by the end of the year.  May we assume that you are inclined to postpone its expiry?

A.

We will conduct a study taking into account the possibility of the postponement of its expiry, as I have stated in the Diet session.  In other words, it is important to monitor and analyze the business conditions, cash flows, economic climate and various data of SMEs, and directly listen to the opinions of SMEs and financial institutions; basically, we are conducting a study considering the possibility of postponement of the expiry of the Act.  Now that it is December, we need to make a decision in the not-too-distant future in order to draw a conclusion by the end of the year and communicate it to SMEs nationwide by the year end.

Q.

I have a question regarding the issue of secondary losses of housing loan companies commonly referred to as “jusen.”  Under the Liberal Democratic Party's rule, the rough guide was to split the burden in half between the public sector and the private sector.  What is the policy under the current administration?

A.

That is a very good question.  The Resolution and Collection Corporation (RCC) is preparing a disposal plan for the collection of jusen debts and other such matters based on the laws with the view to complete the plan in December 2011.  RCC is currently endeavoring to collect the debts to minimize the public burden while giving consideration to the circumstances of creditors.  The FSA is also conducting studies on such topics as how to close RCC's jusen accounts in the future.  Nevertheless, I cannot say anything for certain at this time on the prospects for such matters as the disposal method of secondary losses associated with jusen debts.  We will conduct studies while engaging in extensive discussions with interested parties.

Q.

May we interpret that the rough guide to split the burden in half between the public sector and the private sector will be taken back to the drawing board?

A.

We intend to conduct studies while discussing extensively with interested parties on the disposal method of secondary losses associated with jusen debts, so I cannot say anything for certain at this time.

Q.

Please explain the framework of the inspection committee on administrative actions against the Incubator Bank of Japan in more detail.

A.

We hope to restore public confidence that has been lost in relation to the Incubator Bank of Japan by creating a third-party inspection committee.

Q.

I am Namikawa from Toyo Keizai.

You responded to my question previously that there are no minutes of meetings of Mr. Takenaka or others that had been held upon creating the Incubator Bank of Japan. If there is nothing, what will be the subject of the inquiry? What evidence will the inquiry be based on?

A.

In a nutshell, Mr. Kimura was the top management executive, so Mr. Masanori Tanabe was appointed to DICJ Governor in order for DICJ to press criminal charges and take civil action to properly hold him accountable for this.  I believe the process will be executed pursuant to laws and the Commercial Code as a matter of course.  As I mentioned first, Mr. Kimura was a consultant to the FSA and allegedly played a central role on matters relating to the Bank at the time together with then-Minister for Financial Services Heizo Takenaka.  We would like to conduct a thorough inquiry, including looking into such matters.

Q.

Given that there are no minutes recording what has been said by the parties, is there a possibility of summoning and interviewing them?

A.

As third parties, we intend to select individuals with specialized knowledge, experts, individuals who would be satisfactory to the general public and specialists who would be convincing to professionals in the financial sector.  It would be extremely impolite to would-be members for me to make any comments before creating the third-party inspection committee; with this in mind, we will establish the third-party inspection committee in an appropriate manner.

Q.

When will the findings of the inspection committee be compiled?

A.

As I explained today, I made a report at the Cabinet meeting pursuant to Article 5 of the Act on Emergency Measures for Early Strengthening of Financial Functions.  This, among other factors, prompted Ministers to express their opinions one after the other as I just described especially at the informal gathering with Cabinet ministers.  We have taken this seriously and decided to create the inspection committee, so it would be rude for me to say anything for certain at this stage to prospective members of the third-party inspection committee.  For example, some Ministers have stated that the provisional payback percentage at 25 percent is extremely low.

In any case, we will bear in mind that the objective is to create a third-party inspection committee for the purpose of drawing conclusions that would be satisfactory to the general public, including addressing public mistrust in the financial sector.

Q.

I am Takahashi, a freelance reporter.

A company called Gaitame.com was ordered to suspend its operations for one month in October as a result of distributing falsified exchange rates in September. The Chief Research Director of Gaitame.com Research Institute is Heizo Takenaka, who is supposed to be serving as a role model even after migrating to the private sector. Despite this incident, instead of resigning from the post, his “Heizo Takenaka Report” was released and posted on the top page of its website this Monday. What are your views on this situation?

A.

I was not aware until now that former Minister for Financial Services Heizo Takenaka serves as the chief researcher of Gaitame.com Research Institute.

Q.

His title is “Chief Research Director”.  The major ministerial posts he has held are listed in his profile.

A.

That is news to me. Given that confidence is fundamental to the financial sector, a former Minister of Japan-especially a former Minister for Financial Services-needs to properly impose strict self-discipline to minimize allegations made by the general public, even after retiring from a ministerial post.  As this was news to me, I will investigate this.

Q.

There are no news reports in the media about administrative actions taken, which have been published on the FSA website.  What do you think of this situation?

A.

I remember being informed of administrative actions taken, but I actually had no knowledge of Mr. Takenaka serving as chief researcher.

Q.

On the topic of the inspection committee, the provisional payback percentage was limited to 25 percent presumably because of the execution of supervision and inspection.  Do you have any intention to specifically look into supervision and inspection?

A.

The inquiry will indeed be conducted including looking into these matters.  Our inspections were obstructed by avoidance of inspections.  I have been told that for this reason, the same inspector visited and supervised them two or three times very enthusiastically, which is extremely rare.  I expect a thorough inquiry to be conducted by the third-party inspection committee by taking these matters into consideration.

Q.

May we request information on the inspection committee such as its objectives in paper format?  Please consider providing documents separately to today's announcement.  As it is rather half-baked, we would like to have documents explaining what it will submit, by when, and for what purpose.  It will be highly appreciated.

A.

If that is the case, I shall consider your request.  I will take responsibility for my own words as the nation's Minister and as the top official responsible for the FSA, as a matter of course.

(End)