Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, May 20, 2011, from 8:35 a.m. to 9:01 a.m.)

[Opening Remarks by Minister Jimi]

Today, at a meeting of cabinet ministers on the disaster (a meeting of the headquarters for emergency disaster control), I expressed my opinions about problems related to and the importance of the double loan problem, which is frequently discussed at Diet committee sessions. While I have jurisdiction over private financial institutions, the Ministry of Economy, Trade and Industry, the Ministry of Agriculture, Forestry and Fisheries and the Ministry of Land, Infrastructure, Transport and Tourism have public finance and policy-based finance schemes, and Minister for Disaster Management Matsumoto oversees the fund for the rebuilding of disaster victims' lives, which may provide 3 million yen in fiscal expenditure when a disaster victim builds a new house after losing a house. The Minister of Finance also has a very important role to play. From the Prime Minister's office, I have recently received a document that makes it clear that the Chief Cabinet Secretary should do appropriate coordination work. Double loans involving private financial institutions are under my jurisdiction although the matter is not entirely covered by my duties, so I expressed my opinions about problems related to and the importance of that matter.

That is all I have to say.

[Questions & Answers]

Q.

At your party's plenary session of lawmakers on May 18, Mr. Kamei, your predecessor as the Minister for Financial Services, said that the banking business license of banks that refuse to provide new loans if they are to forgive loans should be revoked. Although I presume that you do not necessarily agree with him, what is your view on that?

A.

Frankly speaking, the situation has changed considerably compared with 15 years ago. Fifteen years ago, we got major banks to forgive loans totaling 3.5 trillion yen after uproarious Diet debate about the jusen problem. To make up for the remaining shortfall, (former) Chief Cabinet Secretary Kajiyama created two funds. At that time, to put it bluntly, as neither the economy nor the financial sector was globalized as they are now, Japan took various measures, such as getting domestic banks to forgive loans, on the basis of domestic laws alone.

Fifteen years on, as I have said over and over again, the economy has become globalized, for better or for worse, in the era of a unipolar world that has followed the collapse of the Soviet Union. The financial sector has led the globalization, and the entire world has basically become a liberal economy as a result of the development of computer technology as well as the growth of markets.

While I oppose the trend of excessive globalization as a politician, we cannot ignore markets. There are markets in all liberal societies, whether in Japan, Asia, the United States, the United Kingdom or other European countries. There are rules in each market.

Markets have many positive aspects, as I mentioned in the Diet in the past. However, at the same time, it is difficult to distinguish between ordinary investment and speculative investment in some cases. In the case of subprime loans, for example, excessive deregulation encouraged over-leveraging, which was excessive use of speculative money. As a result, risks grew too much to be borne by U.S. investment banks alone. That did not just have an impact throughout the United States. It still has lingering effects around the world. Financial instability is spreading in Europe, from Greece and Ireland to Portugal, as you know. Such is the extent of the globalization of the financial sector, and there are rules to follow.

In the forthcoming era, how to democratically control speculative money will be a critical challenge for mankind. Unfortunately, speculative money cannot be dealt with by any single country alone. Therefore, the G-8 and G-20 countries are working together toward financial regulatory reform. When the yen rose excessively after the earthquake disaster, the G-7 countries held an emergency telephone conference and Japan, Europe, and the United States conducted coordinated interventions. The yen depreciated rapidly, as you know. This shows that if governments around the world work together toward a common goal, they still have an influence over the market. However, under the rules of markets, there are sectors into which the reach of national political power does not extend even if a country tries to influence a market.

For example, the United States has the greatest political power in the world. However, even that country is confronted with markets. After the Lehman shock, risks held by just one company spread throughout the world.

Markets can act as a very efficient driving force of economic prosperity, so I am pointing out not only the negative aspects of markets. I believe that the greatest challenge for mankind in the 21st century is how the people around the world should use their wisdom and work together to control markets for the sake of the prosperity and well-being of all mankind. Although Mr. Shizuka Kamei, who is the leader of our party (the People's New Party), made the comment that you mentioned, later, I privately reminded him of the perspective that I spoke of just now.

Now that the economy has become globalized, the Japanese government cannot act based on its own judgment alone. For example, as I stated in the Diet, Tokyo Electric Power issued corporate bonds totaling 200 billion yen in Europe. While Japan's sovereignty may not extend to the European corporate bond market, which is under the sovereignty of European countries, there are rules that govern corporate bonds. In particular, economic and financial globalization has proceeded far. If countries around the world work together, they have significant political influence. However, even if any single country tries to influence markets for political reasons, the rules of markets are very firmly entrenched. I will appropriately perform my duties as the Minister for Financial Services while keeping in mind that we are entering such an era

Q.

I am Inoshita from Toyo Keizai.

While I understand that the government as a whole will consider how to deal with the double loan problem, what additional measures do you think that the Financial Services Agency (FSA) can take under the Act on Special Measures for Strengthening Financial Functions and the SME (small and medium-size enterprises) Financing Facilitation Act?

A.

As I often mention, the financial source of private financial institutions is deposits entrusted by individuals, so the most basic principle of financial institutions is that they repay deposits with interest.

However, this time, I hope to put into force the (amended) Act on Special Measures for Strengthening Financial Actions as soon as possible. This enables private financial institutions in the six prefectures of the Tohoku region and Ibaraki Prefecture to increase their capital. However, as we are dealing with the impact of a natural disaster this time, the amended act, unlike the existing act, will not pursue the responsibility of managers, as this is not a case in which the personal responsibility of managers should be pursued, as I have been telling you from the beginning. The existing act sets criteria concerning various benchmarks, such as efficiency, that must be met as a precondition for capital injection. However, we will make it as easy as possible to increase capital. Of course, an increase in the capital amount will enhance the capabilities and efficiency of financial institutions. That will significantly expand the range of options that may be taken by managers of private financial institutions. As a result, the regional financial intermediary function will be strengthened in a comprehensive manner, so capital injection will be the key point of the (amended) Act on Special Measures for Strengthening Financial Functions.

The Ministry of Agriculture, Forestry and Fisheries' financing schemes for fishery and agricultural cooperatives, and the financial support scheme of the former Housing Loan Corporation, which is now known as Japan Housing Finance Agency, receive interest subsidies financed by the taxpayer's money. Therefore, those schemes can provide loans with a five-year grace period of principal and interest payment. In addition, the Ministry of Economy, Trade and Industry has a “marukei” financing scheme (financing for the improvement of the management of small business operators) - around 20 years ago, I was responsible for overseeing small and medium-size enterprises - which has been providing no-interest, unsecured loans since then. To that end, the taxpayer's money is used to finance interest subsidies. That is how policy-based finance works, as you know.

There are certain limits to the risks that can be taken by private financial institutions over which we have jurisdiction. However, as private financial institutions are somewhat like steam locomotives, they are powerful. Even so, locomotives cannot climb an uphill slope. And yet, I think that unless the financial locomotives get moving on their own, the economy will not take off and achieve powerful growth.

Someone said in the Diet that people with double loans have to start from negative territory. The government as a whole should provide as much support as possible for the start from negative territory, and such support will require fiscal expenditure in some cases, which means that the Ministry of Finance will be involved. All measures should be used in combination so as to complement each other. Regarding double loans, there is a long-standing principle that the taxpayers' money should not be used to cover loss of individuals' private assets, so it is not a simple matter. However, as the Great East Japan Earthquake and tsunami as well as the nuclear accident have had a very extensive impact, it is necessary to hold substantial discussion on whether the existing principle should remain unchanged.

Q.

I suppose that the Committee on the Review of Administrative Actions regarding the Incubator Bank of Japan (Nihon Shinko Ginko) has held several meetings. It is not clear specifically what this committee is doing and when it will compile a report. Could you give me some idea of when the report will be compiled?

A.

The Committee on the Review of Administrative Actions regarding the Incubator Bank of Japan, which was established by the FSA, comprises experts with excellent social credibility as members, and Mr. Keimei Kaizuka, a professor of economics at the University of Tokyo who is a learned man of good character and who is a nephew of the late Dr. Hideki Yukawa, who was awarded the Order of Cultural Merit, is serving as advisor. I have been told and believe that the committee is working hard. When its report has been submitted to the three senior political executives (Minister, Senior Vice Minister and Parliamentary Secretary), I will provide you with appropriate explanations. As I said when the committee was established, we will not make any announcement while its debate is ongoing. As this is a serious issue that generated distrust in financial administration, I am hoping that an excellent report will be compiled so that the distrust can be dispelled. However, let me refrain from commenting on the progress in the debate, as I said at the beginning.

Q.

The on-site inspection of Mizuho Financial Group was completed yesterday, while the bank has apparently made a decision on institutional reform. How do you feel about that and what will be the focus of your interest as you watch the bank's future actions?

A.

I am aware of various newspaper and TV reports about this matter. As Mizuho Financial Group issued a press release stating that it is not considering specifics of the reorganization of the group, the FSA will refrain from making comments for now.

However, generally speaking, it is desirable that financial institutions make constant efforts to improve organizational efficiency and appoint the right persons for the right positions. Mizuho Bank's latest system problem, its second such problem, has undermined the credibility of the settlement function of banks, whose business has a public nature, so the problem is very regrettable as I already said. First and foremost, it is important for Mizuho Financial Group itself to make voluntary efforts to prevent the recurrence of a system problem and make internal improvements with a strong sense of crisis.

As for future actions, the FSA has not yet closely examined the results of the inspections of Mizuho Financial Group and Mizuho Bank and the content of reports submitted by them, and we need to consider what action to take after conducting the examination, so I would like to refrain from making comments with prejudgment. However, generally speaking, if a problem arises, it is desirable that private financial institutions make voluntary improvement efforts without waiting for administrative actions.

(End)