Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, April 1, 2011, from 10:35 a.m. to 11:09 a.m.)

[Opening Remarks by Minister Jimi]

Yesterday, on March 31, a bill to partially amend the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc., which extends the SME Financing Facilitation Act for one year, until the end of March next year, was enacted in the Diet and was promulgated and put into force on the same day.

In December last year, I concluded that it was appropriate to extend the SME Financing Facilitation Act for one year in light of the economic and financial conditions and the progress in financial institutions' efforts to facilitate financing while taking account of the opinions expressed by small and medium-size enterprises (SMEs), and I told you about my conclusion. The bill to extend that act was enacted, promulgated, and put into force yesterday.

In the meantime, I would like to offer my condolences for the people killed in the Great East Japan Earthquake and my sincere sympathy for the numerous people affected by this disaster. The occurrence of a major natural disaster like this has expanded the role of this act.

I hope that SMEs and housing loan borrowers across Japan who have been directly or indirectly affected by this earthquake will take advantage of this act to improve their management, achieve business reorganization and stabilize their living conditions.

The Financial Services Agency (FSA) will encourage financial institutions to deal with SMEs that have been affected by this earthquake in line with the purpose of this act.

Yesterday, in order to improve the enforcement of the SME Financing Facilitation Act, we also published a draft of the guideline for the supervision of financial institutions that is intended to induce financial institutions to exercise the consulting function and made a Cabinet Ordinance revision intended to considerably simplify disclosure and reporting documentations related to this act.

In addition, we published a draft of the Comprehensive Guidelines for Supervision of Small- and Medium-Sized Enterprises and Regional Financial Institutions, which is intended to induce regional financial institutions to support local SMEs through the so-called relationship banking initiative and underpin local economies. I will work harder to facilitate financing for SMEs through appropriate implementation of these measures.

[Questions & Answers]

Q.

I have just one question.

Regarding the extension of preferential tax treatment for securities-related income, opposition parties are arguing that the extension should be abandoned so as to allocate funds for restoration work. I hear that when the Prime Minister met with Mr. Shii of the Japanese Communist Party yesterday he said that idea will be considered. What do you think of the idea of abandoning the extension to allocate funds for restoration work?

A.

I was near the Prime Minister when he made a remark to that effect in the Diet. In light of the huge scale of the damage inflicted by the earthquake and tsunami, the top priority should be post-disaster restoration and it is natural to consider a wide range of options regarding the financial resources. I believe that this is very important.

On the other hand, in view of the very harsh economic and financial conditions that Japan faces now and the recent movements in the stock market, I am sure that invigorating the economy to facilitate restoration is also very important. From that perspective, the securities tax break is a very important measure.

As you know well, although the Nikkei Average was at 10,434 yen on March 10, the day before the earthquake, it fell to as low as 9,755 yen at the close yesterday, down 679 yen compared with the pre-earthquake level. Trading volume was heavy and prices showed wild swings. In addition, the yen strengthened. Yesterday, (French) President Sarkozy came to Japan. Mrs. Lagarde, France's Minister of Economic Affairs, Finance and Industry, is the chair of the G7 and G20, and a statement issued at the meeting of the G7 Finance Ministers and Central Bank Governors expressed “confidence in the resilience of the Japanese economy and financial sector” and made clear to the world that the G7 countries would join Japan in exchange market intervention. Against this background, I have kept the stock market open with a strong resolve.

If all of these factors are taken into consideration, I believe it is appropriate to extend the reduced tax rate for securities-related income, which is scheduled to expire on December 31 this year, beyond the end of 2012, so that we can prevent the economic condition from deteriorating because of the earthquake, as Japan, all told, is still in the midst of recession.

Q.

I am Takahashi, a freelance journalist.

I understand that the revisions of the Financial Inspection Manual and the Guidelines for Supervision that were announced yesterday are special measures intended to ease the burden and prevent the confusion that may be caused by the impact of the earthquake. On the other hand, maintaining the financial soundness of financial institutions is another important perspective. What is your view, or the view of the FSA, on the balance between these two matters?

A.

The once-in-a millennium earthquake and tsunami caused a nuclear power station accident and inflicted extensive damage, both directly and indirectly, on financial institutions and creditors. In addition, as the earthquake occurred on March 11, we face a very extraordinary situation in which the process of compiling the financial industry's financial results for the fiscal year ending in March may be disrupted.

As you mentioned, the measures we announced at this time provide for special cases that may be permitted when financial institutions make self assessment. Specifically, the Financial Inspection Manual and the Guidelines for Supervision were revised. For the moment, some financial institutions are still in a state of confusion. However, as taking deposits from customers and extending loans is the most important role of financial institutions, financial discipline is essential. While financial institutions have a public nature and need to serve public interests, taking deposits is also a basic function of the financial industry. Therefore, ensuring a sense of safety and trust is important. There are various laws for that purpose, so I believe that maintaining the right balance is essential.

In that sense, as they are private-sector financial institutions, it is necessary to maintain their soundness. On the other hand, we face the unprecedented disaster, so we must do our best to deal with it. Therefore, it is a difficult challenge to maintain the right balance. In times like this, we must conduct administration in a well-balanced manner while giving consideration to your ideas and opinions for reference.

Q.

I am Sonoda from Hokenmainichi Shimbun.

There has been a media report that the president of NKSJ Holdings predicted that the payment amount of earthquake insurance claims will exceed one trillion yen. Although there will not be a problem this time, do you think that the existing scheme would be sufficient to cover the payment if another earthquake followed in succession?

A.

I read that news article. As you know, the General Insurance Association of Japan, which is investigating the status of damage, is making efforts to grasp the total payment amount of earthquake insurance claims, so I cannot mention an estimated payment amount for the moment.

However, in times like this, it is important to act quickly, so non-life insurance companies have taken very flexible measures, such as jointly taking aerial photographs to assess the damage and, in the case of minor damage, accepting photographs and declarations by the applicant for claims as a basis for the payment although, usually, the insurance company assess the status of damage itself.

In any case, as the government provides reinsurance for earthquake insurance exposures, up to 5.5 trillion yen may be covered, as I remember it. There is an appropriate scheme including the reinsurance, although I am aware of the media report that the payment amount may exceed one trillion yen. However, in addition to the reinsurance provided by the government, private-sector non-insurance companies as a whole have a substantial amount of reserves. The government has reserves of 1.3 trillion yen and the private sector holds reserves totaling one trillion yen for earthquake insurance claims. Therefore, I do not think at all that the insurance claims payment based on contract terms will have a significant impact of insurance companies' financial condition.

In the case of the Great Hanshin and Awaji Earthquake, although a major earthquake like that was said to be rare, the payment amount of earthquake insurance claims was 78.3 billion yen. Although there has been a media report that the payment amount will exceed one trillion yen, the government provides reinsurance as I mentioned earlier, and the upper limit on the payment amount of insurance claims is 5.5 trillion yen. So, I am not worried at all about the financial conditions. I believe that the existing scheme ensures that non-life insurance companies can execute their primary duty, that is, honoring their contracts with policyholders.

Q.

Regarding Mizuho Bank's system problem, you said the other day that you will take a strict action against the bank. Although it may be difficult for you to comment on the management of a company in your capacity as a state minister, a megabank is so big as to have significant influence on the people's lives. Could you tell me about your view on the responsibility of the management?

A.

As you know, a system problem occurred at Mizuho Bank after the earthquake and tsunami. As Mizuho Bank is one of Japan's three largest banks, it is very regrettable that a system problem has occurred in a situation like this. When the bank's president visited me on Sunday, I expressed my regrets and strongly instructed him to identify the cause and restore the system as soon as possible.

As for the status of the operation of Mizuho Bank's system, the exchange transaction processing system is functioning normally and over-the-counter services at retail branches as well as the operation of ATMs have returned to normal. Although I was hoping that the problem would be resolved during the three-day weekend, some services remained disrupted. However, the other day, I received a report that Internet and other transactions had all returned to normal. Therefore, on Monday, March 28, the FSA notified Mizuho Bank that it will conduct an on-site inspection based on the Banking Act. We will require a formal report on the analysis of the cause of this system problem and the status of its risk management.

This is a system problem and there are computer experts at the FSA, who will accompany the inspection. People with expert knowledge will join the inspection team. The FSA will take a strict action after examining the content of the report and the results of the inspection.

Q.

What is your thinking on the responsibility of the management team?

A.

As the first step, we sent a notice that the FSA will conduct inspection based on the Banking Act on March 28 and the inspection will be conducted accordingly. That system problem occurred due to some cause or other and the Banking Act requires an appropriate investigation, so the inspection must be conducted as required.

Q.

When will you require the submission of a formal report based on Article 24 of the Banking Act?

A.

In principle, the FSA refrains from commenting on matters concerning the specifics of the inspection of an individual financial institution, and as the results of inspection concerns the management of a private company, the FSA also refrains from making comments in principle.

However, generally speaking, as this system problem had a very large impact and Mizuho Bank is a megabank, we notified it on March 28 that we will conduct an on-site inspection based on the Banking Act and that we will require the submission of a report based on Article 24 of this act. As I mentioned earlier, we will require the submission of a report on Article 24 of the Banking Act at an early date to check the facts and cause of this system problem.

Although I would not comment on the specifics, the president told me that numerous transfers of donation money had been concentrated at particular branches, causing the system to break down, as has been reported by newspapers and TV.

(End)