Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, February 18, 2011, from 11:11 a.m. to 11:42 a.m.)

[Opening Remarks by Minister Jimi]

Today, I do not have anything particular to report you.

[Questions & Answers]

Q.

First, a G20 meeting will be held in Paris on February 18 and 19. Could you tell me which issues of debate you are paying attention to?

A.

At the meeting of G-20 Finance Ministers and Central Bank Governors to be held in Paris, France, on Friday, February 18 and Saturday, February 19, the global economy and financial regulatory reform are expected to be on the agenda. I met with Ms. Lagarde, France's Minister of Finance (Minister of Economic Affairs, Finance and Industry) in France in January and with Mr. Noyer, governor of the Banque de France, when he came to Japan recently. As France is the chair of G20 now, they will preside over the forthcoming G20 meeting of Finance Ministers and Central Bank Governors as the chairpersons.

At the Seoul summit, it was agreed that it is important to steadily implement measures agreed under the Basel III and it is necessary to further work on financial regulatory reform. At the forthcoming meeting of G-20 Finance Ministers and Central Bank Governors, I understand that discussions will be held on the implementation of measures agreed at the summit and on the progress in the work on new financial regulatory reforms.

As I have been saying, Japan believes that while international financial regulatory reforms will help to make international systems more sound in the medium to long term, it is very important to pursue well-balanced reforms that take account of the difference in the circumstances of individual countries' financial systems and to pay sufficient attention to the impact on the real economy.

As I mentioned several times, I was a member of the Hashimoto Cabinet when Hokkaido Takushoku Bank and Yamaichi Securities failed in 1997 as a result of a financial crisis, and when Nippon Credit Bank and Long-Term Credit Bank of Japan failed in 1998. At that time, banks engaging in overseas business were required to have a minimum capital adequacy ratio of 8%, and banks focusing on domestic business were required to have a minimum capital adequacy ratio of 4%. Generally speaking, the higher capital adequacy ratio a bank has, the more sound it is. However, if it goes too far, a credit crunch will occur. During the financial crisis, two big department stores located in front of the railway station in my hometown of Kitakyushu failed-a loan buyback provision was also a factor behind this-, and thus, I learned first-hand about the soundness of banks and the impact on the real economy. I related my experiences like this to Ms. Lagarde and Mr. Noyer.

In this respect, Japan has a similar stance to France's and Germany's stance. I visited the United States two years ago and again last year. Particularly in the United States and the United Kingdom, after the Lehman shock, the people strongly criticized the use of taxpayer money to restore the soundness of the financial system and financial institutions. When I visited the United States two years ago, a senior U.S. government official and a well-known academic told me that nine in 10 Americans are opposed to and angry at Wall Street financiers' way of doing business. Japan also faced the problem of jusens (specialized housing loan companies) two years before the 1997 financial crisis. At that time, Japan was forced into using public funds totaling 685 billion yen, drawing harsh criticism. Based on experiences like this, the United States and the United Kingdom had to use taxpayer money to stabilize the financial system. Later, in the United States, President Obama adopted economic measures using fiscal funds totaling about 70 trillion yen and China was also forced into using fiscal funds totaling nearly 60 trillion yen.

Japan was struck very hard and pushed to the brink by the financial crisis, which started in 1997, and the jusen problem, which started two years earlier than that. Based on this bitter experience, Japan has established the world's most advanced legal framework regarding the failure of banks and the rehabilitation of failed banks, I believe. In light of that, we will continue to engage in international cooperation at the forthcoming meeting of the G20 Finance Ministers and Central Bank Governors with a view to preventing the recurrence of a financial crisis and strengthening the financial system. Without sound financial institutions, sustainable corporate management would be impossible and a liberal society would be unable to function. Pursuing the right balance in that respect is very important. We will engage in international cooperation while firmly arguing our cases.

Forgive me for having made a long speech but I explained my position because this is a very important matter.

Q.

I am Namikawa from Toyo Keizai.

I would like you to answer my question as the head of an administrative agency. When I asked you about (the privatization of) Development Bank of Japan (DBJ) the other day, you said that this matter would be studied by the Ministry of Finance. However, as DBJ is a financial institution, the FSA should be involved in it. Don't you think so?

A.

Various reviews have been conducted on financial institutions engaging in policy-based finance, which have been under the jurisdiction of different ministries. Policies concerning financing for small and medium-size enterprises used to be under the jurisdiction of the former Ministry of International Trade and Industry. Meanwhile, other financial matters were under the jurisdiction of the Finance Ministry alone or together with other ministries, as the Financial Services Agency (FSA) did not exist before the authority over fiscal matters was separated from that over financial matters. The reviews covered matters like this. As DBJ is a financial institution, it is naturally under the jurisdiction of the FSA in a broad sense. However, regardless of the ministerial jurisdiction, it is important to deal with financial institutions from the perspective of striking the optimum balance between the public and private sectors.

Q.

Is it possible to achieve the optimum balance when the Ministry of Finance and the FSA are separately trying to do that?

A.

That is exactly where political leadership must be exercised.

Q.

How about establishing a joint committee to discuss this matter?

A.

I would not comment on specific proposals like that. However, as I used to be a member of the Liberal Democratic Party (LDP), I am keenly aware of the wall of ministerial sectionalism.

For example, little progress has been made in efforts to integrate kindergartens and nursery schools. Formerly, there were two umbrella organizations for nursery schools. One of them had Mr. Ryutaro Hashimoto (a former Prime Minister) as a guardian, while I was supporting the Japan Private Nursery School Association. Nursery schools, governed by the Civil Welfare Act, were under the jurisdiction of the former Ministry of Health and Welfare, while kindergartens, governed by the School Education Act, were under the jurisdiction of the former Ministry of Education. It is easier said than done. In the era of LDP government, there was a proposal to create a new type of facilities for children, as the two organizations had their respective supporters among lawmakers. Although efforts to integrate kindergartens and nursery schools are now under way, it is not easy, as I know from my experience as a supporter of the Japan Private Nursery School Association.

As individual ministries and agencies have maintained strong powers in their areas of jurisdiction over the 65 years since the end of World War II, politicians, even the Prime Ministers, did not succeed in tearing down the wall of sectionalism. Mr. Yoshiro Mori (a former Prime Minister) supported the umbrella organization for kindergartens, while nursery schools basically had the support of Mr. Ryutaro Hashimoto. As nursery schools were divided into two groups, Mr. Hashimoto supported one of them and I supported the other. From my experience, I know that there was fierce sectionalism during the era of LDP government and the wall that separated ministries was really thick. I have the impression, based on my experience of spending my time in a governing party, an opposition party and a governing party again, that that situation has eventually led to the change of government. While I am ready to accept criticism straightforwardly, I believe that this must be done from the standpoint of the people following the change of government.

(End)