Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, March 22, 2011, from 9:46 a.m. to 10:21 a.m.)

[Opening Remarks by Minister Jimi]

It has been around 10 days since the Great East Japan Earthquake occurred.

I would like to express my sincere condolences again for the people killed in the earthquake disaster. I would also like to offer my heartfelt sympathy to the people affected by this disaster.

On Friday, March 11, I, as the Minister for Financial Services, together with Bank of Japan (BOJ) Governor Shirakawa, requested relevant financial institutions to take flexible measures regarding the payback of deposits to people who have lost their passbooks. In light of the opinions of disaster victims, on Sunday, March 20, the Financial Services Agency (FSA) and Local Finance Bureaus in Tohoku and Kanto asked financial institutions to ensure awareness of our request among retail branches, and to flexibly and conscientiously deal with disaster victims according to their respective circumstances and reopen closed branches at an early date while strengthening cooperation between the headquarters and branches under the leadership of the headquarters and maintaining cooperation with other financial institutions.

Unfortunately, there have been crimes that exploit the people's goodwill, such as an attempt to induce transfers of money into fraudulent bank accounts through a false donation campaign. I would like to ask the people to take great care when transferring donation money into a bank account.

That is all I have to say.

[Questions & Answers]

Q.

Regarding Mizuho's system problem, although the functions of depositing and withdrawal were restored this morning, the function of money transfer will not be restored until this afternoon. Thus, it has taken as long as a week to normalize all functions. How do you view this situation as the impact on consumers is spreading, and what action will the FSA take as the financial supervisor?

A.

I am aware that last evening Mizuho Bank announced that it was moving closer to processing the backlog of unsettled transactions left over from last week and that on March 22, today, it would open all retail branches at the normal start time but with reduced operations in order to ensure the normalization of the system processing.

The FSA is urging Mizuho Bank to continue to do its utmost to normalize the system processing of transactions and take every possible measure to deal with customers appropriately.

Q.

Have you received a report on any specific cause?

A.

As for the cause of this system problem, I would like to refrain from saying anything definite for the moment as I am expecting to receive a report on details later. However, I have been told that the system was disrupted by the occurrence of numerous transactions at a particular branch.

Q.

I would like to ask you about the capital of banks as a whole. Today, the Nikkei Average is slumping at around 9,000 yen due to the impact of the disaster. Do you think that this will affect banks' capital through latent losses and write-downs?

A.

Just before I came here today, the Nikkei Average was up 344 yen, if I remember correctly. Since the Monday of last week, I have been saying that the market will be kept open. The Nikkei Average first fell by 500 yen and then dropped 1,000 yen, before rebounding 500 yen. I suppose that this was partly because of the impact of the G8. At a past G20 meeting, it was agreed following the yen's rapid rise that volatile currency movements are not beneficial for the global economy. In light of that, Ms. Lagarde, France's Minister of Economic Affairs, Finance and Industry who is the chair of the G7, issued a statement saying that the G7 countries would “join with Japan in concerted intervention in exchange markets” at the recent meeting of the G7 Finance Ministers and Central Bank Governors. The G7 also expressed “confidence in the resilience of the Japanese economy and financial sector,” as I mentioned at the previous press conference. Amid this market mood, the Nikkei Average rose 344 yen today, so I am grateful for the G7 agreement.

Therefore, I will carefully monitor the market.

Q.

Do you mean that with the Nikkei Average slumping at around 9,000 yen, there is no need to worry about the possible impact of latent losses on banks' capital?

A.

Although it is difficult for the moment to say anything definite about the possible impact of the recent earthquake, I believe that the impact on the capital adequacy ratio of financial institutions as a whole will be limited, as they have an adequate level of capital.

In any case, the FSA will carefully monitor the possible impact of the recent earthquake on financial institutions. As I mentioned now, I believe that the impact on capital will be limited.

Q.

In relation to Mizuho Bank's system problem, you expressed “extreme regret” last Friday. Although the depositing and withdrawal functions were restored this week, the problem still remains unresolved. What do you think of that?

A.

Although inconveniences may be caused to business operators in the morning, the on-line system will be fully restored this afternoon. As I mentioned over and over again, from my standpoint as the Minister for Financial Services, it is extremely regrettable that an incident like this has occurred at a bank that has a public nature and needs to serve public goods.

However, the FSA ordered Mizuho Bank to accurately report on its response to this system problem in an appropriate and timely manner, and I received reports from the FSA staff in my office over the three-day weekend through yesterday.

As it is very important to restore the system as soon as possible and protect customers, we have instructed Mizuho Bank to take every possible measure to do so. We will monitor the bank's efforts to fully restore the system and normalize the processing of transactions. We will require the submission of a formal report on the cause of this system problem and future risk management at an appropriate time. The FSA intends to take appropriate action after carefully examining the content of the report.

Q.

Do you have an administrative measure in mind when you speak of “appropriate action”? Is it possible that the FSA will take an administrative measure?

A.

I intend to take appropriate action.

As you know, Mizuho Bank is doing its best to fully restore the system. According to a report made by the bank's president to me yesterday, the system will be mostly restored around noon today and be fully restored tomorrow.

Although the problem remained partially unresolved this morning, he told me that the system will be fully restored tomorrow, and I expressed my intention of taking appropriate action. However, I would like to refrain from saying what that action will be with any prejudgment under the present circumstances.

Q.

I am Nomura from Sekai Nippo. Regarding the nuclear power station accident, and depending on how the situation will develop, there may be a considerable impact on stock prices. What do you think of the idea of flexibly applying the regulation on the capital adequacy ratio?

A.

As for the impact on the current capital adequacy ratio of deposit-taking financial institutions such as banks in the business year ended in March, it is difficult for the moment to say anything definite about what impact the disaster will have. However, as financial institutions as a whole have an adequate level of capital, I expect that the impact on their capital adequacy ratio will be limited.

At my previous press conference, I received a similar question concerning life and non-life insurance companies, both of which also have an adequate level of ordinary and contingency reserves. In the case of non-life insurance companies, the government provides reinsurance. Therefore, I assured you that there was no need to worry about the management of those companies as a whole. I would like to you to well understand and report on that point.

Q.

I am Namikawa from Toyo Keizai. I have two questions. First, last week - in the afternoon of March 17, to be more specific - the 23 Shinkin banks that belong to the Tokyo Association of Shinkin Banks sent to the disaster-stricken region 1,500 cartons of food and clothes out of the stocks of emergency reserves stored at their headquarters. As a second step, Shinkin banks located in Tokyo are preparing to send such relief goods out of the stocks stored at their branches, although I am not sure whether all of the stocks are provided. They are probably the only Japanese financial institutions that are engaging in such activity. I would like you to comment on the activity.

A.

I did not know of that until now. As I said earlier, financial institutions have a public nature and need to serve public goods, so I, as the Minister for Financial Services, am very grateful for the donation of 1,500 cartons of goods to the disaster-stricken region.

Q.

Thank you for your comment.

My second question concerns debate on the reconstruction scheme or policy, which apparently started around the afternoon of March 17 at the Prime Minister's office. I would presume that the financial sector will play a major role in reconstruction. Could you tell me whether the FSA has received any instruction concerning the financial sector and how the FSA will be involved? Earlier, two news reporters asked you about the capital adequacy ratio. However, in my eyes, the current capital adequacy ratio does not matter at all. What is more important is how reconstruction-related needs will affect the BOJ's total assets. In that sense, I would like to know whether the FSA has received any instruction in relation to that issue.

A.

At the first meeting of the Emergency Disaster Response Headquarters that was held recently, the Minister of Finance, the Minister for Financial Services, the Minister for Economic and Fiscal Policy, and the Chief Cabinet Secretary discussed rescue activity and daily-life support, as well as the economic situation in light of the fact that areas extending as much as 500 kilometers in three prefectures (Fukushima, Miyagi and Iwate Prefectures) north of Ibaraki Prefecture have sustained such great damage. An informal meeting of relevant cabinet ministers on the economic situation started shortly past 11 a.m. The government should exercise their most fundamental functions in emergencies like natural disasters and epidemics of disease, so the FSA will actively support economic reconstruction.

Q.

I strongly hope that the FSA will play the central role in implementing financial measures related to reconstruction.

A.

Thank you for your words of encouragement.

Q.

I am Kataoka from Hoken Ginko Nippo.

In relation to the damage done by the recent earthquake, the insurance industry has taken various measures to speed up insurance payment, such as setting up the disaster response headquarters. How do you evaluate those measures?

A.

The insurance industry has provided significant cooperation. Both the life and non-life insurance sectors are making serious efforts to grasp the current situation. In the insurance industry, various conditions are usually attached to insurance with riders. However, in light of the large death toll of the disaster, the insurance industry has offered to set aside the conditions, and I am very grateful as the minister in charge.

Q.

I am Nomura from Sekai Nippo. Prime Minister Kan has mentioned the risk that the whole of East Japan could crumble in a worst-case scenario. As what will happen is unpredictable, the possibility of the underwriting of government bonds by the BOJ, which is allowed under a proviso of Article 5 of the Public Finance Act, should be considered as an option. What do you think?

A.

It is true that Article 5 of the Public Finance Act has such a proviso. However, I would presume that you have heard from your parents about the devastating postwar inflation caused by the BOJ's underwriting of government bonds to finance war expenditures that came against the background of the strong influence of the Army and Navy Ministries. The Public Finance Act bans the BOJ's underwriting of public bonds in principle. Approximately 95% of public bonds are absorbed by the market.

I am well aware of Article 5 of the Public Finance Act. I know that it has an exclusionary clause that permits such underwriting on condition of a Diet resolution adopted with majority support in both the House of Representatives and the House of Councillors. However, since government bonds should in principle be absorbed by the market, cautious consideration is necessary.

Q.

Regarding Mizuho Bank's system problem, the bank's president, Mr. Nishibori, is scheduled to assume the chairmanship of the Japanese Bankers Association on April 1, and Mr. Nishibori himself expressed doubt about the appropriateness of assuming that post at this time. What is your view on the timing of his assumption of the post?

A.

I have read about media reports about what you mentioned. However, this is a matter of personnel appointment in the private-sector banking industry, so I would like to refrain from making comments. Generally speaking, banks belonging to the Japanese Bankers Association have been continuing to work together to deal with the damage done by the Great East Japan Earthquake.

In the Tohoku region, there are 72 financial institutions and 2,700 retail and other branches, as I remember it, and nearly 90% of the branches were open Saturday and Sunday in line with a written request made on Friday in the name of the BOJ's Governor and in my name. I hear that some employees at the 2,700 branches have missing family members or have other causes for concern but that they continued to work in light of the public nature of financial institutions. I am very grateful for the fact that nearly 90% of the retail branches are operating as usual, with some employees continuing to work despite the uncertainty over the safety of their missing family members.

Previously, I mentioned that we were unable to contact some financial institutions. As a matter of fact, we were unable to contact Ishinomaki Shoko Shinkumi for a long time.

We were unable to contact nine of its 12 branches, and only two of the nine continued to receive electricity supply. However, the other seven branches remained open despite the disaster. When we managed to contact them later, we learned that many people had been killed as a result of the tsunami, as they were located in Ishinomaki City. Of the nine branches, seven were cut off from electricity but remained open.

As a politician and as a human being, I am very grateful for the fact that in light of their public nature, financial institutions are continuing to operate in the midst of this unprecedented disaster based on the Japanese people's spirit of forming a strong bond with each other in times of emergency to protect their local communities.

Foreign media such as Financial Times and Wall Street Journal Asia have praised the Japanese people's orderliness and perseverance in enduring the hardship caused by the great disaster, and I believe in their continued efforts.

As a state minister, I am strongly resolved that we must overcome this unprecedented crisis and rebuild Japan as a strong country, as Prime Minister Kan has mentioned. I appreciate your cooperation and advice.

(End)