Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, May 6, 2011, from 12:07 p.m. to 12:31 p.m.)

[Opening Remarks by Minister Jimi]

Today's cabinet meeting was the first cabinet meeting in a long time, and after it, I participated in a meeting on the earthquake and the nuclear power plant (a meeting of the joint headquarters for emergency disaster and nuclear disaster response). Forgive me for having kept you waiting.

Let me make a statement on just one point. At an informal meeting of cabinet ministers, National Strategy Minister Genba, who comes from Fukushima Prefecture, mentioned the impact of the nuclear power station accident on the market. I also said that I will carefully watch the market as bonds issued by Tokyo Electric Power accounts for 5 trillion yen out of the total amount of corporate bonds, 60 trillion yen, and other electric power companies are also raising funds in the corporate bond market. The price of the bonds has declined by around 20%, making it difficult to issue new bonds, while the company's stock price has dropped by nearly 80%. While the responsibility of Tokyo Electric Power must be pursued appropriately, a stable supply of electricity is important. For economic development, it is necessary to establish a scheme that assures foreign investors and the market about the stability of electric power companies, so, as the Minister for Financial Services, I will stress that point at an informal meeting of cabinet ministers. The economy of the region served by Tokyo Electric Power, namely the Tokyo metropolitan area, accounts for 40% of Japan's GDP, and with regard to financial affairs, this region accounts for 45% of the total deposits in Japan and 50% of the total loans. Tokyo Electric Power is effectively supporting the Tokyo metropolitan area.

[Questions & Answers]

Q.

Regarding the double loan problem related to victims of the Great East Japan Earthquake. When members of the Reconstruction Design Council visited the disaster area the day before yesterday, the mayor of Minami Sanriku Town said that the rehabilitation of corporate management will be impossible unless outstanding debts are forgiven. While this is a very difficult issue from the perspective of financial discipline, as the Minister for Financial Services, how much do you think that the government should intervene in this matter?

A.

Questions were very frequently asked about this matter at last week's sessions of the Budget Committees of the Houses of Representatives and Councillors. As for what to do with the double loan problem, I am aware that Minami Sanriku Mayor Sato referred to the issue that you mentioned. Regarding the modification of the terms of loans owed by disaster-stricken small and medium-size enterprises (SMEs), and housing loans owed by disaster-stricken people, former Financial Services Minister Kamei enacted the SME Financing Facilitation Act after the change of government, and the effective period of this act was extended for one year. This act encourages lenders to meet requests for the modification of loan terms as much as possible. Since before the earthquake disaster, we have been publishing the status of modification, including the amount of loans whose terms were modified in the minimum unit of one million yen. In light of the purpose of the SME Financing Facilitation Act, since March 11, when the earthquake occurred, I, together with the Bank of Japan's Governor, have repeatedly requested all financial institutions, including banks and life and non-life insurance companies, to take a proactive approach, and the FSA also has made such request three times or so in the name of a relevant director-general. In response to the request, I understand that financial institutions have been proactively dealing with this matter.

In the meantime, as I mentioned earlier, the major source of funds for private-sector financial institutions over which I have jurisdiction is deposits entrusted by ordinary people, and the basic premise is that deposits are repaid with interest. In principle, private-sector financial institutions use private deposits - private property is constitutionally protected - as a source of funds for the provision of loans. Also, the situation differs on a case-by-case basis, as there are various borrowers, such as SMEs and housing loan borrowers, and high income earners and low-income earners, and land prices are high in some places and low in others. In that sense, I presume that you understand that it would be difficult to call on private-sector financial institutions to universally forgive debts owed by disaster victims given the nature of such institutions.

However, the double loan problem is a major political issue. At the Budget Committee session of the House of Councillors, the Prime Minister mentioned the need for some creative ideas. The scope of risks that can be taken by private-sector financial institutions alone is naturally limited. Public-sector financial institutions can naturally do various things in line with policy objectives, by using the taxpayer's money to reduce interest rates. For example, under the financial support scheme for the rebuilding of disaster victims' lives, a total of up to 3 million yen is provided in cases where an entirely destroyed house is rebuilt. That is fiscal expenditure, as mentioned by Minister for Disaster Management Matsumoto in the Diet, and that is included in the supplementary budget. That is fiscal expenditure, and there is also the payment of condolence money for deaths caused by the disaster. There are measures involving fiscal expenditure and measures related to policy-based finance, such as fiscal support provided by Japan Housing Finance Agency, which was formerly known as Housing Loan Corporation. This agency is under the jurisdiction of the Ministry of Land, Infrastructure, Transport and Tourism. In relation to that, a drastic special measure for disaster victims is included in the supplementary budget. That provides a five-year grace period during which principal repayment and interest payment are suspended. In addition, funds for the provision of no-interest loans to SMEs will be established by Japan Finance Corporation and Shoko Chukin Bank, which are under the jurisdiction of the Ministry of Economy, Trade and Industry, as a special loan scheme for recovery from the Great East Japan Earthquake. This is also included in the supplementary budget that was passed this week. These measures should be used in combination. As I said at my press conference on Monday, the Chief Cabinet Secretary is responsible for coordination work, while I have jurisdiction over private-sector financial institutions.

Another major player is the Ministry of Agriculture, Forestry and Fisheries. In one sense, agricultural and fishery cooperatives have traditionally handled the largest amount of no-interest loans. Although the primary industries lack the vitality to achieve recovery, they are indispensable industries, so they have traditionally received generous public and governmental financing. In addition, the other day, the Minister of Agriculture, Forestry and Fisheries asked me to do something about financing for people in the Sanriku region who have lost fishing boats, as I mentioned earlier. As I have jurisdiction over private-sector financial institutions, I will refer all such matters to the Chief Cabinet Secretary. I believe that it is an important mission to minimize the burden on disaster victims so as to help them rebuild their lives. Therefore, I am strongly requesting the Chief Cabinet Secretary to do coordination work.

As most major ministries have traditionally had policy-based financing schemes, we should use them. However, ultimately, it is desirable that private-sector financial institutions play a leading role in getting the economy going without interest subsidies and other financial assistance. Before the disaster, the private-sector financial institutions were in principle playing a leading role in the Tohoku region, too. However, as a result of the earthquake and tsunami disaster, factories have been swept away. I hope that such cases will be addressed through financing schemes using risk-tolerant funds, such as fiscal expenditure by the government, and financing through public sector financial institutions, such as no-interest loan schemes, as well as financing by private-sector financial institutions. We have the SME Financing Facilitation Act as I mentioned earlier, and under the former Financial Services Minister Kamei, the FSA revised the guidelines for supervision and the financial inspection manuals, and instructed financial institutions to take the standpoint of SMEs and people who have lost jobs due to recession and who are saddled with housing loans. This approach has been well established as it was continued for almost two years. We requested financial institutions to pursue this approach more thoroughly in times of disaster like this. To reiterate my point, in post-disaster reconstruction, if fiscal expenditure and financial support by government-affiliated financial institutions are provided, and if financing by private-sector financial institutions, which is the most powerful and voluminous support, are provided, the economy will begin a self-sustaining recovery and grow spontaneously. As everything has been swept away as a result of the earthquake and tsunami disaster, that process is absent. I will do my best as a member of the government to restore the process.

Although my reply may have been a bit too long, I am sure that I have made clear how we are going to resolve the double loan problem.

Q.

Regarding Mizuho Bank's system problem, I understand that Mizuho Bank and Mizuho Financial Group submitted reports on the cause of the problem at the end of last month based on Article 24 of the Banking Act. Could you comment on the reports? Also, you previously said that you will rigorously deal with this case in light of the content of a formal investigation report. What is your thinking regarding future administrative actions?

A.

I am aware of the media reports to which you are alluding. However, as this matter concerns the specifics of the supervision of an individual financial institution, I would like to refrain from replying to your question.

The FSA needs to closely examine the content of the report submitted by Mizuho Bank and it is still conducting inspection. After the inspection, the FSA will take action in light of the results of the inspection. As for future actions, I would like to refrain from making comments now with any prejudgment, as the inspection of the bank has not yet been finished. I believe that for the regulatory authority, this is the right approach to the management of banks in a liberal society and its relationship with private-sector financial institutions.

Q.

I am Oshima from Kinyu Times. When lending money to SMEs, financial institutions conduct rigorous examination of various matters, such as the quality of products, cost-competitiveness, accident risk, and the capability of managers. However, when investing in government bonds or in Tokyo Electric Power, they appear to have a moral hazard problem as they believe that ultimately, the government will make payment. What do you think?

A.

My understanding is that the compensation scheme has not been finalized. In the Diet, the Prime Minister said that the primary responsibility rests with Tokyo Electric Power. However, as the government has promoted nuclear power as a national policy, the government is not entirely exempt from responsibility. That was what the Prime Minister stated in the Diet. There are nine electric power companies, including Tokyo Electric Power, and - this is my favorite theory - electricity, iron ore, and semiconductors constitute the essential basis of modern industry. Basically, I think that it is appropriate for me to refrain from making comments on behalf of the FSA on specific matters concerning individual financial institutions, such as financing for Tokyo Electric Power.

However, as I said just now, this concerns the basis of industry, and the nine-company system has been maintained since the end of World War II. Therefore, we will closely monitor market developments, and as I mentioned at the beginning, we must ensure that appropriate risk management is conducted by closely watching risks related to corporate bonds and the stock market. In a liberal society, that applies to either SMEs or major companies, so we will continue appropriate supervision in that respect.

However, there are various laws applicable to electric power companies. As Japan is a law-governed country, it goes without saying that each law must be observed in principle.

Q.

I am Hamada, a freelance journalist.

Recently, the Ordinance for the Enforcement of the Money Lending Act was partially amended. The amendment makes it easier to provide emergency loans. However, I suppose that debt relief should take precedence over providing additional loans to people who have borrowed loans in amounts larger than a third of their annual income. What is your view on that?

A.

Providing a loan in excess of a third of the borrower's annual income is an exceptional measure for disaster victims. Money regarded as essential in light of social common sense is treated as an exception. Let me take medical care, for example, as I am a doctor by profession. If you consult a doctor, you are charged a fee. That is money regarded as essential in light of social common sense, and there is a provision that treats a loan to cover such cost as an exception to the limit on the total loan amount. If loans cannot be provided because of the restriction in cases related to the Great East Japan Earthquake, inconveniences will arise. This law was enacted in order to help people struggling with multiple debts, and the introduction of the provision for exceptional measures was an amendment intended to prevent inconveniences from arising due to procedural provisions specified by laws and regulations following the Great East Japan Earthquake, as I remember it.

Q.

I am Inoshita from Toyo Keizai.

The other day, the Prime Minister said in relation to the double loan problem of disaster victims that the establishment of a fund may be an option, and I hear that he issued an instruction to Minister of Economy, Trade and Industry Kaieda. Has there been more in-depth discussion on that at informal meetings of cabinet ministers, or has any new idea been presented since then?

A.

There has been no discussion at informal meetings of cabinet ministers. Although the idea of establishing a fund has been mentioned on various occasions, as you know, no reference has been made to a “fund” at informal meetings of cabinet ministers. However, at the Budget Committee, the Prime Minister mentioned a request for the establishment of a public-private fund from the heads of the municipalities in the disaster areas. Therefore, I hope that various discussions will be held on that under the Chief Cabinet Secretary.

(End)

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