Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, April 8, 2011, from 11:06 a.m. to 11:55 a.m.)

[Opening Remarks by Minister Jimi]

Today, energy issues were discussed at the fourth meeting of the Electricity Supply-Demand Emergency Response Headquarters, which was held before the cabinet meeting. Financial institutions are relying on large-scale systems, such as the settlement systems operated by the Bank of Japan (BOJ) and the Japanese Bankers Association, and the BOJ's system in particular is connected with central banks around the world. If power supply to the settlement system is cut off, it may cause surprise at the extent of the power supply shortage in Japan. Therefore, since the first meeting, I have made a strong request to the Chief Cabinet Secretary and Minister Renho with regard to that point. The FSA staff conducted difficult all-night negotiations with the Ministry of Economy, Trade and Industry. Although the amount of electricity consumed by the settlement systems of the BOJ and the Japanese Bankers Association is small compared with the total consumption, these systems are the arteries of economic activity, so if they are shut down mechanically due to rolling blackouts, and if the network that connects the BOJ with central banks around the world is broken, it would be a serious problem. If we lose the trust of the global community, it would be difficult to regain it. After all, power supply has been secured for the settlement system of the Japanese Bankers Association. Although this may appear to be a minor issue, it is very important.

While a plan to require large-lot users to reduce power consumption in peak hours by 25% was presented at the fourth meeting of the Electricity Supply-Demand Emergency Response Headquarters, I called for continued electricity conservation efforts and expressed my appreciation as the Minister for Financial Services.

Another thing that I would like to mention is that Mr. Kaoru Yosano, the Minister of Economic and Fiscal Policy, has been very critical of the idea of setting a universal power consumption reduction target of 25% for large-lot industrial users. From my experience of serving as the Parliamentary Secretary for International Trade and Industry 20 years ago, I think that the question we face is whether a hungry man should be given fish or a fishing rod. Fish may be sufficient to save a starving man for the moment. However, if given a fishing rod, he will be able to catch fish over and over again. In times like this, we must give serious consideration to the fishing rod approach. The economy will not grow unless we take the path of an expanding equilibrium. Economic growth will help to stabilize the employment of the people in the disaster areas and rebuild their lives, so as a cabinet minister, I hope that appropriate efforts will be made from that perspective. This is not limited to financial matters. I stressed that I am doing my part in order to expand the economy in the spirit of the fishing-rod approach, rather than merely giving fish to a starving man.

[Questions & Answers]

Q.

What do you think of the universal reduction of 25% in energy consumption that you mentioned just now?

A.

All cabinet ministers agreed to the 25% reduction today. As has already been mentioned by newspapers, details will be discussed with the Ministry of Economy, Trade and Industry following this formal agreement, and based on the results of the discussion, the Minister of Economy, Trade and Industry will work on the principles together with industry groups. Whether or not the point I made is taken into consideration makes a big difference. Therefore, it is important to take the path of an expanding equilibrium and, as a result, increase economic benefits. The production of cars will become impossible if key parts cannot be manufactured because of rolling blackouts. I said that careful consideration is necessary and efforts should be made with the fishing rod approach in mind, rather than just giving fish. I used this analogy to explain the importance for the economy to achieve an expanding equilibrium.

Q.

Do you have any idea of how power consumption should be reduced in the financial sector?

A.

The outline of electricity supply-demand measures in summertime was determined today. I understand that your question is what actions the financial industry should take. As I said earlier, at the meeting, in which the Chief Cabinet Secretary and Minister Renho acted as moderators, the outline of electricity supply-demand measures in summertime was determined. I am aware of newspaper reports that said the Japanese Bankers Association is considering a plan under which branches will be closed on a rotation basis in each region as an electricity-saving measure to prepare for a power shortage in summertime. As the outline, which requires large-lot users to make a reduction of around 25%, was formally determined today, we are discussing various ideas with the financial industry. With the outline in mind, the FSA will urge the business sectors under its jurisdiction to formulate plans for achieving the reduction target while taking account of the convenience of customers.

I hear that the banking industry is considering plans to shut down ATMs located outside branches, shorten business hours, change the temperature setting for air conditioning, and reduce lighting. A formal study will start now. Although we face an emergency situation, we must also achieve economic growth. I hear that very energy-efficient lighting equipment has become available as a result of technological innovation, so I think that it is important to think in terms of both quality and quantity so that electricity conservation will lead to economic recovery. From the viewpoint of the FSA, maintaining the stability of the financial system is very important, as I stressed at the beginning. Since the rolling blackout started, I have said that the financial system is being treated as an exception. We will try to obtain the understanding of the people and industry - although the industry may not be enthusiastic - and urge financial institutions to formulate plans for achieving the reduction target.

Q.

I would like to ask you about financial institutions located in the disaster areas. As of yesterday, 140 branches remained closed, as I remember it. Some small and medium-size financial institutions have lost both branches and customers, and it is unclear at some financial institutions how much non-performing loans will increase in the future, I would presume. Are there causes of concern about financial institutions' capital and financial conditions and do you know how they have been affected?

A.

For the moment, regional financial institutions as a whole, including those located in the disaster areas, have sufficient capital. Regarding the impact of the earthquake, I understand that financial institutions are checking the status of customers. In any case, the FSA will keep a careful watch on the situation of regional financial institutions.

To cite an example - I suppose you know about this because you are mostly from the economic news desk - the minimum capital adequacy ratio for regional banks is 4% under the Basel regulation. The capital adequacy ratio stands at 11.6% for regional banks, 12.3% for Shinkin banks, and 10.9% for credit cooperatives, far above the minimum capital adequacy ratio of 4%, so these financial institutions have sufficient capital.

However, as the nuclear accident has had an impact on some regions, mainly Miyagi, Iwate, and Fukushima Prefectures, I presume that you asked that question with that in mind. In relation, Japan has the Act on Special Measures for Strengthening Financial Functions. This act provides for a scheme to support struggling regional financial institutions and small and medium-size enterprises (SMEs) by strengthening the financial intermediary functions of financial institutions through capital injection by the government. Initially, this was enacted in conjunction with the establishment of a payoff scheme (limited deposit protection). This act provides for the use of public funds for the injection of capital into financial institutions.

When this act was first enacted, it required that the responsibility of the management team should be strictly pursued. After the act, which was a provisional law with a limited life, expired, it was revived following the Lehman shock. At that time, the new act relaxed the requirement for the pursuit of the responsibility of the management team compared with the old act. Therefore, the new act is very practical, as you know. This will remain in effect until March 31 next year, with the quota of government guarantee set at 12 trillion yen. As I have been saying, the government injected capital into 11 banks under the amended Act on Special Measures for Strengthening Financial Functions and into two banks under the pre-amendment act, with the capital injections totaling 349.5 billion yen. As the quota is set at 12 trillion yen, there is still room for capital injections totaling around 11.6 trillion yen based on this act. This act is effective in encouraging financial institutions to increase their capital based on their own management decisions and vigorously exercise their financial intermediary function to support local SMEs, including those located in the disaster zones.

However, at private-sector financial institutions, managers act based on their own decisions, as you know. There is a legal basis for capital injections totaling around 11.6 trillion yen to strengthen the capital base of financial institutions, and the capital adequacy ratio of financial institutions is at a sufficient level, as I mentioned earlier, so I would like the Japanese people as well as financial institutions to understand that there is not any cause for concern about the financial sector.

In relation to the Act on Special Measures for Strengthening Financial Functions, the Great East Japan Earthquake, which is an unprecedented disaster, has probably produced various effects on the financial functions, so we will consider measures such as introducing exceptions to the requirements for the application of this act for the benefit of areas that have been seriously affected by the earthquake and tsunami as well as the nuclear power station accident, and we will make necessary revisions.

I am strongly hoping to submit to the current Diet session a bill with provisions for strengthened regional support. The FSA is now considering how to make this act very practical. When the original act was enacted, it was required that the responsibility of managers of the financial institution receiving capital injection be pursued in all cases.

After that, the requirement was relaxed to a great extent. This time, the earthquake and tsunami in the Tohoku region is beyond the efforts of managers, as you know, so their responsibility will not be pursued in principle. I am considering how to make this act more practical, and the FSA staff are working all night to devise ways to invigorate regional financial institutions. Frankly speaking, details are still under consideration. However, one option will be not to pursue the responsibility of managers so as to make it easier for financial institutions affected by disaster damage to apply for capital injection.

Under my appropriate direction, the FSA staff, who are capable professionals, are considering such measures as making the requirements of management enhancement plans more flexible.

We plan to submit the relevant bill during the current Diet session, and the FSA probably needs to register the bill with the Policy Research Committee of the ruling parties this afternoon. In order to deliberate the bill to partially amend the Act on Special Measures for Strengthening Financial Functions, earthquake-related bills will be examined in a comprehensive manner, so the Cabinet Office has instructed ministries to submit any bill related to the earthquake and tsunami for examination. Therefore, the FSA plans to register its bill with the Policy Research Committee of the ruling parties this afternoon.

Q.

Does that mean that you will seek the enactment of the bill by the end of April?

A.

Japan had the Act on Special Measures for Strengthening Financial Functions when the Lehman shock occurred. We would like to make this a very practical law by adding provisions specific to particular regions. As a politician, I believe that it is important that financial institutions do their utmost from the standpoint of the people in the disaster areas in times like this, as I mentioned earlier, so I have obtained the cooperation of all relevant parties.

As for the enactment of that bill, it will be submitted by the cabinet to the Diet together with other bills after the registration. Today is the deadline for the registration of bills with the ruling parties' Policy Research Committee. Opposition parties have expressed support for bills related to the earthquake and tsunami, so I think we must enact the bills as soon as possible so as to do everything we can to support the restoration and recovery efforts of the people struggling with the aftermath of the earthquake and tsunami, including the presidents of SMEs and farmers.

Q.

I am Namikawa from Toyo Keizai.

When you mentioned financial systems such as the settlement systems of the BOJ and the Japanese Bankers Association at the beginning, I presume that you were speaking of the situation in the Tokyo Metropolitan area, weren't you?

A.

I was speaking of the situation in the service area of Tokyo Electric Power, namely the Kanto area.

Q.

You know, in 2006, the Central Disaster Prevention Council examined countermeasures against a Tokyo Metropolitan area earthquake, and a study on power supply sources was conducted as part of the examination. Do you know that power supplied to Chuo and Chiyoda Wards comes from only one source? A substation in Toyosu is the only source.

A.

The division of the services areas of substations does not correspond to the division of the administrative regions. I know that.

Q.

The in-house power generation facility of the substation in Toyosu is located underground.

The Federal Reserve Bank of New York has its in-house power generation facility in midair as a safeguard against floods. While there is no need to worry about earthquakes, there is the risk of floods.

Individual banks also have in-house power generation facilities, with some of them owning air-cooled facilities and others owning water-cooled ones. The water-cooled type becomes unusable when the water supply is cut off. In Tokyo, each area has only one water supply source. In light of these circumstances, the ideas you mentioned earlier are very effective. Do you intend to discuss more concrete plans?

A.

What you said is very instructive. Although Japan experienced the first oil crisis and the Lehman shock, this is an unprecedented disaster, the greatest disaster in 66 years (since World War II). I would like to express my sincere condolences for the people killed in the disaster, and as a human being and as a politician, I feel deep regret for the fact that numerous people are still living in evacuation facilities and that there are still missing people.

Providing relief to these people is of the first and foremost importance. However, at the same time, although some foresighted people were predicting a crisis like this, the Japanese people in general, including me, did not imagine a disaster of this huge scale. However, now that the great disaster has occurred, crisis management is essential. Major global companies must consider crisis management in anticipation of large-scale disasters and ABC attacks - attacks using atomic, biological, and chemical weapons. In particular, the United States is making appropriate preparations.

A major western company which is operating in Japan and with which I am familiar has backup systems in Tokyo and Nagasaki Prefecture. I think that Japanese managers are also considering various ideas. In the current disaster, fuel oil has been used to operate backup systems. Although problems arose due to a fuel oil shortage, they were overcome.

Fuel oil is used to generate electricity for backup systems. We experienced a fuel oil supply crunch caused by a refinery explosion, so I believe that ensuring safety and security is important in the event of a disaster. Frankly speaking, I feel that I owe it to the people killed in the disaster to use this lesson to establish safe social systems - this is a matter related to the budget - and encourage companies to carry out reforms and the Japanese people to change their mindset.

Q.

I have visited many disaster areas and I have found that most small and medium-size financial institutions in the disaster areas are actively providing unsecured loans. I think that this is praiseworthy. In this context, making the Act on Special Measures for Strengthening Financial Functions more practical is really important. On the other hand, there is doubt about the appropriateness of the Financial Inspection Manual. While measures to relax some requirements were announced the other day, do you have an intention to consider further relaxation in light of the actual circumstances?

A.

Under the Financial Inspection Manual, the FSA has introduced exceptions applicable to extreme cases, such as when it is temporarily difficult for financial institutions to grasp the actual situation of loans because of the disaster damage; when borrower companies have disappeared as their business facilities were swept away by the tsunami; and when a factory was severely damaged.

Second, the FSA has introduced exceptions applicable to cases in which the debtor cannot immediately formulate a business recovery plan when the lending terms are modified. As you know, SMEs have already been allowed to delay the formulation of their recovery plan by one year, and a delay of another year will be allowed. Another important thing is that regarding major companies, which have factories in various places, a delay of one year will also be allowed, as we announced on March 31.

Although we are now taking such measures, it will be important to make sure that money deposited by the people is used to make effective investments with financial discipline so as to best suit the reality, as we supervise private-sector financial institutions. However, at the same time, we at the People's New Party will make appropriate efforts in relation to Development Bank of Japan and various budget items, although these are outside the jurisdiction of the FSA.

The staff of the Tohoku Finance Bureau visit the disaster areas almost every day, and I am receiving daily reports from the Director-General of the bureau. The bureau is holding meetings in Sendai, Morioka and Fukushima to listen to requests from the representatives of regional financial institutions and associations of SMEs as well as the local managers of financial institutions involved in policy-based finance. In addition, the staff of the Tohoku Finance Bureau are frequently visiting areas along the rias (saw-toothed) coastal areas where the disaster damage was particularly severe. I make a phone call to the bureau every day to receive a report. This local finance bureau provides us with first-hand information. If revisions are necessary, we will continue to make revisions.

Q.

The Tokyo Stock Exchange (TSE) apparently plans to postpone the introduction of extended trading hours. This is an example of the impact of a power shortage on the trading infrastructure in the broad sense. Could you comment on that?

A.

I understand that the TSE has been preparing to introduce extended trading hours on May 9 this year as it announced on November 24 last year. The TSE has told us that it has decided to postpone the introduction of extended trading hours as part of the securities industry's electricity-saving efforts. The FSA hopes that the securities industry as a whole, including exchanges, will make appropriate electricity-saving efforts to prepare for a possible power shortage in summer.

Q.

Do you have any comment on the fact that a power shortage is affecting the vital infrastructure of the securities industry?

A.

Keeping the right balance is essential regarding matters like this. As I stated in the Diet, it is very important to keep the market open. At that time, there were various opinions, such as that the market should be closed and that futures trading should be restricted. However, I kept the market open with a strong resolve in the belief that it is necessary to do so all the more in times like this. Although stock prices continued to fall for about a week, the market has now been mostly stabilized. It is important to keep the trading infrastructure open to the world.

Even if trading hours are shortened somewhat, that should be considered in the context of the overall balance.

Q.

The TSE apparently wants to introduce extended trading hours around the beginning of autumn. Do you have any idea of when the extended trading hours can be introduced?

A.

I understand that the TSE has been preparing to introduce extended trading hours on May 9. I have not heard about how long the introduction will be postponed.

Q.

Let me make sure about some points. First, as for the Act on Special Measures for Strengthening Financial Functions, am I correct in understanding that you will revise not the cabinet order or ordinance but the act?

A.

That is what the FSA is considering.

Q.

Does that mean that exceptions regarding the Great East Japan Earthquake will be stipulated in the act?

A.

I understand that exceptions will be described in the act. I would like to take various measures as exceptions applicable to the disaster areas under the Act on Special Measures for Strengthening Financial Functions. As for the specifics of the amendment, it will be stipulated that the responsibility of the management team is not pursued, as I mentioned. The original Act on Special Measures for Strengthening Financial Functions required that the responsibility of the management team be strictly pursued with the force of law. The second version of the act, which was adopted after the Lehman shock, relaxed that requirement. This time, I would like to remove that requirement as an exception, as this is a natural disaster and has nothing to do with the responsibility of the management team. The FSA staff are working hard on the specifics.

Q.

Let me ask you just one more question. Last night, a strong aftershock occurred. It caused widespread power failure. Please tell me about the impact of this on financial institutions in the affected areas.

A.

The tremor occurred at 11:32 p.m. last night, when I happened to be taking a bath. I know that a strong earthquake with a seismic intensity of Upper 6 occurred off Miyagi Prefecture. It affected some retail branches of deposit-taking financial institutions.

Let me tell you about the impact. While we are now checking the details of the status of damage at financial institutions, we held a meeting of cabinet ministers on electricity and energy shortly after 9 a.m., the information available is as of 8:30 a.m. today. Regarding the 2,700 or so retail branches of 72 financial institutions headquartered in the six prefectures of the Tohoku region and Ibaraki Prefecture, there has not been any report of direct damage such as the damage to the buildings of branches. In the meantime, it has been reported that around 30 branches have been forced to be closed due to reasons such as the malfunction of front shutters caused by power failure. At many other branches, ATMs are not operating due to power failure, so transactions are being conducted through manual payment of cash and other means. The FSA will continue efforts to check and grasp the status of damage at financial institutions.

Updated information shall be provided to you later.

Q.

Some branches had already been closed because of the impact of the earthquake disaster. Am I correct in understanding that the 30 branches that you mentioned now have been newly closed because of yesterday's aftershock?

A.

That is correct. Roughly speaking, of the 2,700 branches - regional banks headquartered in the six prefectures of the Tohoku region and Ibaraki Prefecture have head offices, branches, and retail outlets in the disaster zones - some 150 remain closed. That figure had already been announced. In addition, some 30 branches have now been forced to close due to power failure.

Q.

As they are in addition to the 150 branches, the closure of which had already been announced, the total number of closed branches comes to around 180 or 190, doesn't it?

A.

As a result of yesterday's earthquake, an additional 30 branches have been closed.

Q.

The Act on Special Measures for Strengthening Financial Functions, which was mentioned earlier, will expire at the end of the current fiscal year. What do you think of the idea of extending this act or making it a permanent law?

A.

The common sense view would be that this act, which is scheduled to expire on March 31 next year, will likely be extended in light of the purpose of the act and the introduction of exceptions applicable to the areas damaged by the earthquake and tsunami, and the areas affected by the nuclear power station accident, although nothing specific has been decided.

Q.

You said earlier that you are discussing various ideas concerning electricity saving with financial institutions. Do you think that it will be sufficient to implement electricity saving this year or that a medium- to long-term approach will be necessary?

A.

Of course, we must take that into consideration. Although I hope that the supply-demand balance will be fully restored next year, we must also consider this matter from a medium- to long-term perspective in times like this.

Thank you very much for your kind attention.

(End)