Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, April 19, 2011, from 9:51 a.m. to 10:29 a.m.)

[Opening Remarks by Minister Jimi]

Last Saturday, I visited Sendai and Ishinomaki Cities to grasp the actual circumstances of the areas damaged by the Great East Japan Earthquake and exchange opinions with financial institutions. In Sendai, I received briefings on the status of damage from representatives of local financial institutions and exchanged opinions with them.

Sendai, the largest city in Miyagi Prefecture, has a population of around one million people, while Ishinomaki, the second largest city in the same prefecture, has a population of 160,000 people. In Ishinomaki, some Shinkin banks and credit cooperatives suffered damage, including Ishinomaki Shoko Shinkumi. There are a total of 72 financial institutions in the six prefectures of the Tohoku region and Ibaraki Prefecture, with the number of the head offices, retail and other branches of regional banks totaling 2,700. For the first four days after the earthquake, we could not ascertain the safety of Ishinomaki Shoko Shinkumi, which turned out to be the last financial institution for which safety was ascertained. Of its 12 retail branches, nine remained open. Although two of the nine had power supply, the remaining seven had no power. Even in that situation, this credit cooperative paid out deposits of up to 100,000 yen per depositor as a provisional measure. That is why I visited Ishinomaki Shoko Shinkumi.

I also visited other local financial institutions, which had also suffered damage. The building of 77 Bank's Onagawa branch was completely swept away, as were its employees. I hear that only two of the 15 employees survived. According to the bank's president, 13 employees were swept away together with the branch's building. I was reminded of the damage beyond imagination that had been inflicted on the region by this maginitude-9 earthquake, which some people describe as a once-in-a-millennium earthquake.

In the exchange of opinions, I received strong requests from local financial institutions for creating a separate quota, or expanding the existing quota, for assistance by the government and government-affiliated financial institutions under the credit guarantee scheme. As I have been saying, in times of emergency, the Financial Services Agency (FSA) is ready to take necessary measures, including the amendment of the Act on Special Measures for Strengthening Financial Functions with an emergency-oriented approach. As I oversee the FSA, I have urged the FSA staff to work hard to quickly submit to the current Diet session a bill to amend the Act on Special Measures for Strengthening Financial Functions by applying an emergency-oriented approach to the areas struck by the once-in-a-millennium tsunami. Given that more than 20,000 people were killed in the tsunami, I felt grave responsibility to ensure that the public and private sectors work together to perform their duties on my way back from the Tohoku region.

That is all I have to say.

[Questions & Answers]

Q.

This question is somewhat related to what you stated just now. Yesterday, 77 Bank, which is based in Sendai City, announced that it will start considering applying for the injection of public funds based on the Act on Special Measures for Strengthening Financial Functions. I would like you to comment on that. Also, how much do you expect that this move will spread and how will the FSA respond?

A.

I know that yesterday, on April 18, 77 Bank revised the estimate of the financial results in the fiscal year ended in March 2011, with the estimate of net profit of 15 billion yen changed to loss of 30 billion yen, and it also announced that it will start considering applying for governmental capital injection based on the Act on Special Measures for Strengthening Financial Functions.

As you may know, 77 Bank has the largest amount of deposits in the Tohoku region. While capital policy is a matter that concerns the management decision of a financial institution, I understand that financial institutions with strong ties to local communities recognize it as a top priority task to exercise their financial intermediary function to promote post-earthquake reconstruction, so I understand that 77 Bank's decision to consider applying for governmental capital injection based on the Act on Special Measures for Strengthening Financial Functions is intended to contribute to the reconstruction and development of the local community and economy. The FSA has high regard for this decision.

The FSA will positively respond to the bank's request for consultation about governmental capital injection based on the Act on Special Measures for Strengthening Financial Functions and if an application is made - although whether or not to make an application is up to the management team of the bank, which is a private-sector institution - the FSA will quickly screen it in accordance with relevant laws and regulations.

Q.

I would like to ask you about a bill to amend the Financial Instruments and Exchange Act, which has been submitted to the current Diet session. Opposition parties are apparently moving to revise the bill. Could you tell me what the FSA will do with the bill, including with regard to the Certified Public Accountant system?

A.

A cabinet decision was made on the bill to partially amend the Financial Instruments and Exchange Act, which includes a partial amendment of the Certified Public Accountants Act, on March 11, and this bill was submitted to the Diet on April 1. As you pointed out, an amendment of a bill is a matter to be debated and determined by the legislative branch of government. As I belong to the administrative branch, I would like to refrain from making comments.

Q.

I am Namikawa from Toyo Keizai.

Regarding the injection of public funds based on the Act on Special Measures for Strengthening Financial Functions, you have said that the responsibility of managers will not be pursued, is that correct?

A.

That is correct.

Q.

Could you clarify what you mean by “not pursuing the responsibility of managers”? Even if public funds injected into a financial institution have been completely lost, you won't pursue the responsibility of the management team?

A.

The current Act on Special Measures for Strengthening Financial Functions is the second version. When public funds totaling 685 billion yen were used to sort out the failures of the jusen housing loan companies around 15 years ago, debate was conducted in the Diet session at that time. That was one year before the collapse of Hokkaido Takushoku Bank and Yamaichi Securities. I have a bitter memory of that Diet session, which invited harsh criticism from voters as it was marked by an uproarious debate. The original Act on Special Measures for Strengthening Financial Functions, which was enacted in 2004 based on that lesson, sought to strictly pursue the responsibility of managers. This provisional law expired.

The following time, at the time of the Lehman shock, the amendment bill was submitted by the Aso cabinet. This relaxed the requirement for the pursuit of the responsibility of managers compared with the original act. However, this amended act, which is currently in effect, has a provision that requires the achievement of an efficiency target. As I mentioned at my press conference on Friday two weeks ago, the amendment that is planned now comes against the background of a natural disaster.

As I have said, financial institutions constitute the economic artery and sound companies cannot exist without sound small and medium-size financial institutions. A liberal economy cannot exist without sound financial institutions.

At the time of the Lehman shock, there were such problems as non-performing loans. Regarding deposits, which are money entrusted by customers, financial discipline must be properly maintained.

Since the Lehman shock occurred two years ago, banks that are too big to fail have posed a major problem in the United States, the United Kingdom, and other countries. In addition, the use of taxpayer money has invited harsh criticism, mainly in the United States and the United Kingdom. This time, we face the damage inflicted by the tsunami, so this is a national crisis that is beyond the efforts of managers. Therefore, we will not seek the responsibility of managers.

At the same time, financial discipline is also important as I mentioned earlier. The FSA is working hard toward the enactment of the new Act on Special Measures for Strengthening Financial Functions. We registered the bill with the ruling parties' Policy Research Committee, as I already told you. We would like to support companies and people affected by the disaster, and we will strive to keep the dreams of business managers alive. After I said on Friday two weeks ago that the responsibility of managers will not be pursued under the Act on Special Measures for Strengthening Financial Functions, I visited the disaster areas and I received words of praise from some people. They told me that although they were about to lose hope, they were encouraged by news reports carried by the mass media.

We have been reminded of the gravity of our responsibility and influence as persons involved in national administration. The top priority for the moment is the reconstruction of the disaster areas. Fund needs will naturally grow. If financial institutions increase their capital, their lending capacity will grow. Therefore, that should be the top priority. At the same time, it is important to keep a careful watch on the activities of financial institutions to ensure financial discipline.

It is also true that there are limits to what can be done by private-sector financial institutions in a situation like this. Government-affiliated financial institutions and other public financial institutions can provide long-term, fixed-interest-rate loans, loans with a fixed ultra-low-interest rate and, in some cases, loans with a no-interest grace period under policy-based finance schemes. If private-sector financial institutions play their roles together with such public institutions, if private-sector financial institutions and private companies can manage on their own, that would be most ideal. Factories and houses have been swept away, and the reconstruction of a port, for example, will be impossible unless governmental funds are provided quickly to cover most of the cost. Although the existing framework of support requires local governments to bear some of the financial burden, some prefectural governments and municipal governments have lost their functions. With that in mind, I would like to ensure the reconstruction of the disaster areas by taking various measures on a case by case basis - applying the most appropriate measures in light of the circumstances of each region - as well as by using the credit guarantee scheme.

Q.

Let me make sure. I understand well your emphasis on the need for financial discipline. Am I correct in understanding that if even some bit of the injected public funds has become impaired, you will not see it as much of a problem?

A.

Let me make myself clear to avoid any misunderstanding. 77 Bank has a capital adequacy ratio of 13% as I remember it. Given that the minimum required capital adequacy ratio is 4% for banks focusing on domestic operations, this bank has abundant capital. As I explained earlier by citing specific figures, the capital adequacy ratio for regional banks, Shinkin banks and credit cooperatives in Japan is higher than 10%. As 77 Bank's capital adequacy ratio is 13%, there is not any immediate problem. While there is no cause for concern for the moment, various things could happen in the future with regard to small and medium-size enterprises borrowing from this bank, on some of which assessment has not been conducted. I do not think that it is appropriate to make comments based on the assumption of public funds becoming impaired, and of course, financial institutions must maintain financial discipline in principle. Although we will take it into consideration as an important matter, reconstruction is the priority for now. An emergency-oriented approach should be applied to an emergency, as I said, and it is now important for politicians to consider how to promote reconstruction through an emergency-oriented approach. As this matter concerns private-sector financial institutions, financial discipline is essential. However, if we stress that too much, everybody will grow timid. Now, the entire Tohoku region is about to lose hope.

Q.

Please don't misunderstand me. I have asked this question in the belief that it will not matter even if public funds are impaired.

A.

The FSA staff are working hard on the scheme of the new Act on Special Measures for Strengthening Financial Functions.

Q.

Let me make sure once again with regard to public funds. You said that you have high regard for 77 Bank's decision to consider applying for public funds, as in the case of Sendai Bank. How would you like other financial institutions in the disaster areas, including regional banks, to act with regard to this?

A.

Under the Act on Special Measures for Strengthening Financial Functions, public funds totaling up to 12 trillion yen are to be injected into financial institutions. As around 360 billion yen has so far been injected, around 11.6 trillion yen is still available. As I have said over and over again, capital policy is a matter to be decided by managers of individual private-sector financial institutions. Therefore, the FSA will refrain from making comments with any prejudgment. However, there is no change in the FSA's readiness to positively respond to requests for consultation about capital injection if financial institutions decided to consider applying.

Q.

Are you hoping that financial institutions will actively use the capital injection scheme because more than 11 trillion yen is still available for injection as you mentioned just now?

A.

While that is a matter to be decided by managers of individual financial institutions, if financial institutions decide to consider applying, we will positively respond to their requests for consultation given the availability of around 11.6 trillion yen that I mentioned.

(End)