Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Thursday, April 28, 2011, from 9:29 a.m. to 9:57 a.m.)

[Opening Remarks by Minister Jimi]

At a meeting on the economic situation that was held before today's cabinet meeting, the Bank of Japan's Governor, Prime Minister Kan and economic ministers gathered and coordinated their thoughts on the top-priority issue of post-earthquake restoration and reconstruction, as well as the Japanese economy and the difficult financial condition of the disaster areas.

I understand that Mr. Yosano (Minister of Economic and Fiscal Policy) explained that at a press conference. I attended the meeting as the Minister for Financial Services.

That is all I have to say.

[Questions & Answers]

Q.

Did you emphasize anything in particular?

A.

I emphasized that fiscal spending is the only option for providing support regarding matters with a strong public nature in the three prefectures severely damaged by the earthquake and tsunami disaster and Fukushima Prefecture, which was affected by the nuclear power station accident, as I stated in the Diet. As I mentioned earlier, I recently visited Ishinomaki City, which has a fishing port and is a major center of fishery product processing. The restoration of that port needs to be financed with public funds.

In addition, at the former Housing Loan Corporation, which is now known as Japan Housing Finance Agency, a special scheme for disaster victims has been created, under which loans of up to 14.6 million yen with a no-interest grace period of up to five years may be provided to cover the purchase of land under the draft budget. This is probably included in the first supplementary budget, which was discussed at today's extraordinary cabinet meeting.

The Ministry of Economy, Trade and Industry, specifically prefectural commerce and industry departments, will establish funds for the provision of no-interest loans. The provision of no-interest loans naturally requires interest subsidies, which must be paid with the taxpayer's money, and that is covered by this budget. The provision of no-interest loans and loans with a no-interest grace period are special measures for disaster victims. Private-sector financial institutions rely on deposits taken from customers as the source of funds in principle, and they cannot take as much risk as public-sector financial institutions, as I mentioned at a Diet committee meeting. Therefore, we must use an appropriate combination of the functions of public- and private-sector financial institutions. Ultimately, restoration and reconstruction will have been achieved when support by private-sector financial institutions alone is sufficient to ensure that the economy goes well. While that is the ultimate goal, I pointed out that it is important to apply different measures to different prefectures, regions, and industries in the optimum manner.

The draft supplementary budget includes references to matters related to financial markets, including the exchange market. As you know, Federal Reserve Chairman Bernanke held a press conference yesterday. He made a statement that appeared to indicate that although the United States will not shift to credit tightening quickly, the Fed will consider how to mitigate the impact of credit tightening at a few meetings. When I happened to meet the Bank of Japan's Governor today, I asked him whether my interpretation of his statement is correct. He said that that is basically correct. Of course, Japan's post-earthquake restoration and reconstruction and the management of the Japanese economy are important for the global economy as Japan is the world's third-largest economic power in terms of GDP, so the situation of Japan has implications for the global market. The Financial Services Agency (FSA) oversees the financial sector, which is connected to the global market, so I applaud the references made to that point.

Q.

Regarding Mizuho Bank's system problem, the FSA conducted an on-site inspection of Mizuho Financial Group on April 26. What was the purpose of the inspection and what points are you focusing on?

A.

The FSA conducted an on-site inspection of Mizuho Financial Group on Tuesday, April 26 based on the Banking Act, after giving prior notice.

In addition to the on-site inspection of Mizuho Bank based on the Banking Act, the FSA has demanded the submission of a report on the facts and cause of the system problem. We must first carefully examine the content of the report and the results of the inspection, which is ongoing, so I would like to refrain from making comments with prejudgment.

Mizuho Financial Group, which is a holding company, is the parent of Mizuho Bank. The holding company has authority over personnel appointments as you know, so we conducted an inspection after giving prior notice.

Q.

Let me ask one more question. Bank of Mitsubishi Tokyo UFJ will pay a corporate income tax for the first time in 10 years. Could you comment on that?

A.

I am aware of media reports about the matter that you mentioned. However, from my experience of serving as a Diet member for 26 years, I know that regarding tax payment by a specific financial institution, it is customary for the National Tax Agency to refrain from making comments when asked in the Diet. The FSA also always refrains from making comments in the Diet.

Generally speaking, the FSA believes it is desirable that each bank will perform its social responsibilities including tax payment, which is constitutionally obligated, while securing appropriate profit, which is the source of funds for the payment of corporate income tax.

The maximum period of the carryover of deficits is seven years. In the Diet session of 1998 that focused on the financial crisis, the legal framework for the resolution of the failure of financial institutions was established as Japanese financial institutions faced a very tough time. The carryover of deficits emerged as an issue in that course of events. The carryover is allowed in other liberal and capitalist economies, although the carryover period differs from country to country. We created a scheme under which tax payment is reduced or exempted while companies carry over deficits, with the maximum carryover period of seven years.

In any case, for me as the Minister for Financial Services, it is welcome news that a financial institution has secured appropriate profit that is the source of funds for the payment of corporate tax. It is desirable that financial institutions earn appropriate profits and pay tax in accordance with the constitution and relevant laws.

Q.

I am Sonoda from Hokenmainichi Shimbun.

The idea of increasing the burden shouldered by the government under the earthquake insurance scheme has apparently been suggested. Could you comment on that?

A.

Regarding the payment of earthquake insurance claims related to the Great East Japan Earthquake, the government provides reinsurance. As private-sector non-life insurance companies have a substantial amount of reserves, insurance claims are certain to be paid, as I mentioned at my first press conference after the earthquake. Non-life insurance companies earned net profits of 216.2 billion yen and have net assets totaling 5,600 billion yen and contingency reserves totaling 3,800 billion yen. Their solvency margin ratio is 697.1%. In addition, while up to 115 billion yen will be paid by private-sector insurance companies, each of the government and private-sector non-life insurance companies will shoulder half of the financial burden when the payment amount is between 115 billion and 1,925 billion yen. When the payment amount is between 192.5 billion yen and 5,500 billion, the government and private-sector non-life insurance companies will shoulder 95% and 5%, respectively, under the reinsurance scheme undertaken by the government as legally required.

At a meeting yesterday of the Central Disaster Management Council, in which I participated as a cabinet member, Mr. Abe, an honorary professor at the University of Tokyo, who was the chairman of an earthquake-related committee, made various explanations. He told us that since 1900, there have been only six magnitude-9-class earthquakes and that the occurrence of a magnitude-9-class earthquake in Japan had been unexpected. I would like to express my sincere condolences for the people killed in the earthquake and tsunami disaster and the nuclear power station accident. As there is still a large number of missing people, it is important to do our utmost to resolve this problem. In the meantime, there are people whose houses have been swept away who had bought earthquake insurance as an add-on to fire insurance, as well as companies that suffered damage and that bought various casualty insurance policies. Regarding the Great East Japan Earthquake, the government provides reinsurance, and non-life insurance companies have already paid insurance claims totaling 220 billion yen, if I remember correctly.

As I mentioned several times, inspectors of non-life insurance companies usually check the status of damage in each case. However, this time, I, together with the Bank of Japan's Governor, made a strong request regarding that, and non-life insurance companies complied with our request. Instead of conducting damage assessment individually, non-life insurance companies collectively assessed the status of damage of the disaster areas by using aerial photographs. They did so probably because they took the standpoint of disaster victims. They have already paid 220 billion yen in light of disaster victims' needs for funds to cover their immediate expenses. I am very grateful for that. On the other hand, if another earthquake occurs - although I think that the possibility is very small, aftershocks may take place - it is necessary to keep policyholders reassured about the reliability of the payment of earthquake insurance claims. As for the financial burden of earthquake reinsurance shouldered by the government and the private sector, there is no cause for concern about the payment of claims related to this earthquake, as I already said. As it is said that aftershocks may repeatedly occur over the coming one year, we have revised the burden shouldered by the government and the private sector as necessary in accordance with changes in the ability to bear the burden in case an earthquake should occur in other regions. The earthquake reinsurance scheme is under the jurisdiction of the Ministry of Finance in principle. The FSA understands that the review of the burden shouldered by the government and the private sector under the earthquake reinsurance scheme is being conducted mainly by the Ministry of Finance.

In any case, earthquake insurance and reinsurance provided by the government are intended to reassure policyholders, so I hope that the review will lead to results that reassure policyholders.

In principle, the Ministry of Finance has authority over earthquake insurance as you know, so we have heard about the review from the ministry.

I hope that the results of the review will help to reassure policyholders.

Q.

I would like to ask you about Mizuho Bank again. Earlier, you mainly mentioned facts. Could you tell me what your approach to the inspection will be?

A.

We should consider what to do after investigating the facts and cause. It would not be appropriate to prejudge what should be done.

It would not be appropriate for me as the minister in charge to make comments with prejudgment. We have demanded the submission of a report from the bank and are conducting inspection and investigation. As I said previously, IT experts are included in the inspection team. At the FSA, there are employees with a very high level of technical skills who can handle a system problem like this. Computer systems are essential for the financial industry, as you know. As experts in that field are participating in the inspection, it is important to examine the facts and cause first.

Q.

I have yet another question about Mizuho Bank. You said earlier that the FSA is inspecting Mizuho Financial Group because it has authority over personnel appointments as a holding company. Could you explain what that means?

A.

A holding company, which sits atop the group structure, has authority over personnel appointments. I am one of the lawmakers who wrote the law on the holding company system. At that time, I was vice chairman of the Liberal Democratic Party's Policy Research Council. NTT was the first company to adopt the holding company system. After 12 years of controversial debate on a plan to privatize and divide NTT, the holding company system was eventually adopted. As you know, before World War II, “zaibatsu'' groups such as Mitsui and Mitsubishi emerged, leading indirectly to uneven distribution of wealth, and triggering the May 15 and February 26 Incidents, which in turn led to Japan's advance into the Asian continent. As they were regarded as the hotbed of militarism, all zaibatsu groups were dismantled by the GHQ. Because of the memory of that experience, there was strong resistance to the introduction of the holding company system. However, we changed a relevant law, and although the Socialist Party had strong opposition - at that time, the government was a coalition of the Liberal Democratic Party, the Socialist Party and Sakigake - we managed to obtain understanding. NTT was the first company to which the law on the holding company system was applied.

As a holding company is a shareholder, it has shareholders' rights and is responsible for exercising those rights. As Mizuho Financial Group, as a parent company, or as a holding company, is a shareholder, I mentioned its authority over personnel appointments in relation to its responsibility for exercising its rights as a shareholder.

After NTT shifted to the holding company system, many financial companies took advantage of this law, to which I have a strong personal attachment.

Q.

Let me make sure about what you said just now. Do you think that Mizuho Financial Group bears responsibility for the system problem because it has authority over personnel appointments as a holding company and shareholder?

A.

It has responsibilities as a shareholder. As a holding company, it is naturally responsible for the affairs of companies under its control, including the management of a computer system.

Thank you very much.

(End)