Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, May 24, 2011, from 8:41 a.m. to 8:55 a.m.)

[Opening Remarks by Minister Jimi]

Disaster victims’ double loan problem has been very frequently discussed at committee sessions, and the cabinet as a whole will deal with it. Therefore, at today’s informal meeting of cabinet ministers, I strongly asked the Prime Minister and Chief Cabinet Secretary to do their utmost.

[Questions & Answers]

Q.

Although the double loan problem may be a matter to be handled by the government as a whole, could you tell me about your view on how it should be dealt with? Disaster-stricken companies and people are saddled with their old and new loans and they must repay principal and interest regarding both. Do you think that the government should provide support for the repayment of old and new loans? And what support can be provided?

A.

Financial institutions are proactively responding to disaster victims’ applications for the modification of the terms of outstanding loans, such as temporary suspension of repayment.

As I have repeatedly mentioned, on March 11, when the earthquake and tsunami as well as the nuclear power station accident occurred, I, together with the Bank of Japan’s Governor, made a request to all financial institutions, particularly the 72 financial institutions headquartered in the six prefectures of the Tohoku region and Ibaraki Prefecture with a total of 2,700 retail branches and other offices.

Of course, we also made a request to banks and other deposit-taking financial institutions as well as life and non-life insurance companies. Financial institutions are subject to the SME (small and medium-size enterprises) Financing Facilitation Act, although voluntary initiative is what is required by the act. This act, which encourages financial institutions to proactively meet requests for the modification of the terms of loans, was enacted when Mr. Shizuka Kamei was in office as my predecessor as the Minister for Financial Services. This act was extended. There are around 4 million SMEs, and even before the earthquake disaster, financial institutions met requests for modification from nearly one million companies, so I believe that this act has been very effective. This time, the Bank of Japan’s Governor and I requested financial institutions to be more proactive in meeting applications for the modification of the terms of loans.

As for new loans, I understand that the first supplementary budget includes financial assistance measures such as the provision of loans with virtually no interest to SMEs and people engaging in agriculture, forestry and fisheries. As I said over and over again, financial institutions under the jurisdiction of the FSA (Financial Services Agency) are mostly private institutions. The basic premise of private financial institutions is that they repay deposits with interest. On that premise, they exercise their functions, such as the credit creating function and the settlement function. Generally speaking, private financial institutions cannot take greater risks than public ones.

Interest subsidies using the taxpayer’s money, or fiscal expenditures, can be provided to government-affiliated financial institutions and public financial institutions catering to SMEs, so they have various schemes, such as loans with a five-year grace period of principal and interest payment, for SMEs and people engaging in agriculture, forestry and fisheries, as you know.

The first supplementary budget includes measures such as interest subsidies for public financial institutions. In that sense, financing provided by public financial institutions, such as loans with a five-year grace period of principal and interest payment, are very different from financing provided by private financial institutions, so I believe that it is important to use them in combination.

In any case, the double loan problem is not a matter that should be dealt with by ordinary private financing alone, but we must consider a wide range of options. The Prime Minister has recently renewed his instruction for cabinet ministers to come up with ideas of their own. I will work with other ministers, and the government as a whole will carefully consider how to deal with the problem as a matter of critical urgency, as the Prime Minister has repeatedly said in the Diet.

The most basic task is the development of public infrastructure, such as fishing ports, as I already mentioned. The national, prefectural and municipal governments are taking special measures to reduce the burden on local communities, so such projects will be financed entirely by the taxpayer’s money, or fiscal expenditures. I will ensure that public and private financing will be used in combination.

One thing that I would like to stress is that we are working hard on the (amended) Act on Special Measures for Strengthening Financial Functions, which is intended mainly to strengthen the capital base of disaster-stricken financial institutions in the six prefectures of the Tohoku region and Ibaraki Prefecture. Usually, it is up to the managers of private financial institutions to make a decision. In normal times, it is required that the responsibility of managers be pursued and efficiency targets be set. However, the impact of a natural disaster - the damage was inflicted by the tsunami - is beyond the responsibility or efforts of managers. In that sense, I hope that managers will make efforts to increase capital if they wish to do so.

Regarding Shinkin Banks and credit cooperatives, which are cooperative-type financial institutions, this act provides for institutional frameworks of generous support. In any case, an increase in capital will add the forgiving of loans to the range of options available for private financial institutions, albeit on a case-by-case basis. With matters like this in mind, we will work to submit the bill for special treatments under the Act on Special Measures for Strengthening Financial Functions as soon as possible. That is likely to be effective in resolving the double loan problem.

Though my answer may have been a bit overlong, I would like you to understand the points I made.

Q.

The measures that you mentioned just now had already been made public. Are there any measures still under consideration?

A.

Yesterday, the Chief Cabinet Secretary received a similar question. I and the Chief Cabinet Secretary discussed this matter at committee sessions in the House of Representatives. Within the inner circles of the government, a variety of possibilities and scenarios are apparently being studied behind the scenes.

Q.

Regarding the system problem of Mizuho Bank of Mizuho Financial Group, the FSA completed its inspections by last week. Mizuho Financial Group has announced a reform plan of its own. Will you be able to announce the FSA’s administrative action by the end of this month?

A.

As you know, the system problem occurred at Mizuho Bank, a megabank belonging to Mizuho Financial Group, immediately after the Great East Japan Earthquake. I take this problem very seriously, and as I said yesterday, I understand that Mizuho Group formulated and announced a voluntary reform plan based on a company-wide reflection on the problem.

Given the public nature of the business operations of a bank, Mizuho Bank’s system problem concerns the critical part of the settlement function. As Mizuho Bank is one of Japan’s three largest banks, this problem has a very significant impact and undermined the credibility of banks’ settlement function, so it is very regrettable. As I already said, I hope that Mizuho Financial Group will prevent the recurrence of a system problem and regain its credibility by steadily implementing internal reforms.

As for the future course of administrative action, we will consider it calmly in accordance with relevant laws after examining the results of the inspections of Mizuho Financial Group and Mizuho Bank and the content of reports submitted by them.

Therefore, I would like to refrain from commenting on the future course of administrative actions for now with prejudgment. Mizuho Financial Group’s reform plan, which was taken up as a major news item today by various newspapers, has been drawn up voluntarily based on a company-wide reflection on the problem in light of the findings and recommendations of a third-party committee established by Mizuho Bank, which is formally called the Special Investigation Committee on System Failures. I think that the content of the plan deserves some degree of appreciation.

(End)