Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, June 24, 2011, from 10:38 a.m. to 11:13 a.m.)

[Questions and Answers]

Q.

Although the Tokyo Stock Exchange (TSE) and the Osaka Securities Exchange (OSE) have shown willingness to merge with each other, their merger talks have stalled. Could you comment on that? Also, although this is a matter to be decided by exchanges themselves, is it possible that the Financial Services Agency (FSA) will provide some support or other?

A.

I have read newspaper articles about the merger talks. The merger between exchanges is a matter to be decided by their management teams, and at the moment, the FSA has not received a report that anything has been determined. So, I would like to refrain from making comments.

Q.

Regarding the double loan problem, the biggest issue of contention in negotiations between the Democratic Party of Japan (DPJ), the Liberal Democratic Party (LDP) and New Komeito continues to be the idea of establishing a new organization to purchase existing loans. The government and the DPJ have argued that using the existing scheme would enable quicker actions. What do you think is the advantage of using the existing scheme and what is an obstacle to the establishment of a new organization.

A.

Regarding a scheme under which a public organization purchases loans from financial institutions, one issue is how to determine the purchase prices of loans and the scope of loans that may be purchased. Another issue is who should ultimately cover losses that may arise in the process of recollecting purchased loans. I recognize that as was mentioned in the question, we must consider whether the existing framework should be used or a new organization should be established.

In any case, as I have said over and over again, loan repayment in the disaster areas is a matter that cannot be dealt with within the scope of private financial institutions' activities alone. The day before yesterday, the House of Councillors unanimously passed the bill to amend the Act on Special Measures for Strengthening Financial Functions. I am grateful for the passage, as this will strengthen the financial functions in a comprehensive manner and reassure depositors in the disaster areas. Although the Diet has undergone an upheaval, as the minister in charge, I am very grateful to the political parties and parliamentary groups in both the House of Representatives and the House of Councillors for passing this bill based on common sense for the sake of people in the disaster areas. Strengthening the financial functions and reassuring depositors is important in times like these. Although this may be irrelevant to your question, three banks in the Tohoku region and Ibaraki Prefecture have expressed willingness to apply for capital injection if the (amended) Act on Special Measures for Strengthening Financial Functions is enacted. Directly to the presidents of these banks, I expressed my sincere appreciation for their willingness to use this law in light of the struggle of people in the disaster areas. As the injection of capital uses public funds, we need to work out a relevant ministerial ordinance and cabinet order. I also offered my words of sympathy and encouragement to the banks' presidents and pledged to support them based on this law.

If capital is increased and the financial functions are strengthened, reduction or forgiving of debts owed by small and medium-size enterprises will become possible and the range of options that may be taken in relation to housing loans to individuals will be expanded in some cases, although that would be a matter to be decided by managers of private financial institutions. We have enacted this law in order to strengthen the capital base for that purpose.

Even so, the financial source of private financial institutions is deposits entrusted by individuals, which must be repaid with interest, as I always point out. That is the principle that must be followed by private financial institutions, so there is naturally a certain degree of financial discipline. The presidents of the regional banks in the Tohoku region, with their abundant experiences, are familiar with such matters, and as the minister in charge, I told them about the enactment of the law. As they have already expressed willingness to apply for capital injection, we will enforce this act in as practical a manner as possible while exchanging views with the banks. There are matters which would not be noticed by government employees, so feedback from bank officials working in the disaster areas is very valuable as they have practical opinions. I have assured them that I will speak my mind on various matters.

That law was amended so as to enable private financial institutions to do their utmost within certain limits. As I mentioned, ministries have jurisdiction over government-affiliated and public financial institutions, and an interest subsidy scheme using the taxpayer's money as well as a plan to establish funds with financial contributions from the national and prefectural governments and private financial institutions are in place. There are some points on which the DPJ, the LDP and New Komeito have agreed and others on which they have not. Among the points not agreed upon is the issue that you mentioned in your question, namely whether or not to establish an organization to purchase existing loans provided by financial institutions to SMEs, people engaging in agriculture, forestry and fisheries, and people who provide medical and welfare services. The issue here is whether or not it is appropriate to require efforts toward forgiving of debts owed by individuals. However, the government believes that it will not be long before the three parties reach agreement, so we will watch future developments.

Q.

What do you think of the merit of using the existing framework?

A.

As for the establishment of an SME turnaround fund by SME Support, Japan, as the three parties are still holding discussions, I would like to refrain from interfering in this matter. However, using the existing organization would be more convenient, or I should say more familiar to us. We should add more functions to it or expand its size somewhat. Although creating a new organization may appear to be smart, there will be problems such as duplication of functions and a lack of experience among new staff members. Therefore, I think that it is important to expand the existing facilities and strengthen the existing functions or increase the staff to include experienced core members. If I were 10 or 15 years younger, I would have called for the creation of a new organization. However, as I have grown older and gained experience, I now hesitate to grab at whatever is new in a situation like this. People cannot become experts on matters like this overnight. Only people who have worked in the financial industry for some time can deal with such matters. For example, people working in the construction industry may be experts on home building. However, it is doubtful whether such people can be useful regarding financial matters such as debts. Quality, rather than quantity, matters in such matters. Moreover, it is our duty to the disaster victims to implement all necessary measures in an efficient manner. In that sense, it would be better to strengthen the existing organization and expand the range of its applications. However, basically, I expect that the three parties will reach a conclusion on that soon. As Prime Minister Kan has repeatedly emphasized the importance of the double loan problem, I will watch developments from a broad perspective as the Minister for Financial Services.

Q.

You said earlier that you exchanged views with financial institutions that have expressed willingness to apply for capital injection under the Act on Special Measures for Strengthening Financial Functions.

A.

I conveyed the decision to them, rather than exchanging views, as I thought they were waiting for that. The day before yesterday, the bill was passed unanimously in the House of Councillors, and we decided to promulgate it at today's cabinet meeting. As the amended act was formally promulgated today, I telephoned the three presidents as well as the Director-General of the Tohoku Finance Bureau, on the day after the law was unanimously passed. Now, they are working very hard.

Q.

Although you may not have discussed what should be done from now on in the telephone talks, how are you going to proceed regarding the financial institutions willing to apply for capital injection?

A.

While the act was promulgated today, we must work out a relevant ministerial ordinance and cabinet order so as to enable the injection of public funds, and that is a laborious task. I hope that Shinkin banks and credit cooperatives will achieve self-recovery in 10 years. However, depending on the circumstances, mergers may be adopted as an option in exceptional cases. Or support may be provided by local companies and municipal governments, and if things get really bad, Deposit Insurance Corporation may make compensation. That would be a quite unusual situation for the financial industry.

However, I believe that it is the responsibility of politics, to the Tohoku people affected by the earthquake and tsunami disaster and the nuclear power station accident, to take an exceptional measure like that when necessary. The FSA staff worked around the clock even during the holiday season, and I hear that a director at the Cabinet Legislation Bureau worked on this bill during the holiday season - I presume that examination by this bureau is a rather exacting task. This is not a law applicable to financial institutions in normal times. Capital policy, including whether or not to use the Act on Special Measures for Strengthening Financial Functions, is a matter to be decided by managers of financial institutions. Therefore, although I told them about the enactment of the law, I would not make comments on the specifics of the capital injection, for which they expressed willingness to apply for voluntarily based on the law. As I have been told that there are willing private financial institutions, I conveyed the decision to their presidents. In any case, in principle, we should quickly examine an application filed by private financial institutions on their own judgment in accordance with the law, and as the inspector and regulator of private financial institutions, we believe that that is very important. That is the principle.

Q.

The Financial System Council will discuss the role of the financial industry in the medium to long term at a meeting starting at 2 p.m. today, and that is a very vague theme. What is your perspective on problems related to that matter and what kind of discussions would you like this council to hold?

A.

At a general meeting of the Financial System Council on March 7, we referred three issues to the council for its consideration. Regarding the role of the financial industry in the medium to long term, which is one of the three issues, the Financial System Council's working group on the role of the Japanese financial industry in the medium to long term will hold its first meeting today as was mentioned in your question. This working group will study matters such as strengthening the international competitiveness of Japanese financial institutions, enhancing financial functions for local economies, and medium- and long-term challenges that should be overcome in order to promote the further development of the Japanese economy and financial industry. I hope that members of the group will hold discussions from a broad perspective at today's meeting. As I said earlier, international competitiveness and the role of the financial industry in local economies will be the critical factors when we consider how we should conduct financial administration in the future. As I often mention, we need both a broad perspective and a narrow focus. Matters related to international finance require a broad perspective. Financial industries are strongly interconnected across borders. However, regarding matters related to local economies, the SME Financing Facilitation Act, for example, has a narrow focus. The issue here is whether individual SMEs can survive as a result of the modification of the terms of loans. Local economies are comprised of such small details. Therefore, I have mentioned the need for both a broad perspective and a narrow focus. It is important to promote the further development of the national economy and financial industry from both approaches. I hope that the working group will hold substantive discussions on such matters in particular.

Q.

I am Hamada, a freelance journalist.

Regarding how to deal with the double loan problem, on June 22, there was a media report that the guideline for a privately-led debt workout that enables the workout of existing debts owed by individuals without court procedures would be formulated by around mid-July. In that case, won't the individuals concerned be blacklisted with regard to credit information? What is your view on that matter?

A.

Regarding the guideline for a privately-led debt workout, we are holding discussions with relevant parties on whether it is possible to formulate such a guideline for loans to individuals in order to create a favorable environment for financial institutions to forgive debts for individuals borrowing housing loans and self-employed people borrowing business loans, and on tax treatment related to the forgiving of debts based on the guideline. There is already such a guideline for loans to SMEs. Loans to individuals include housing loans and business loans to self-employed individuals. In shopping districts, there are many self-employed people operating retail stores.

The FSA is not responsible for formulating the guideline. The existing guideline for loans to corporations was formulated by the Japanese Bankers Association, as I remember it. I expect that the guideline will be formulated by a study group comprised of representatives of the financial and industrial circles and academicians. Of course, various ministries and agencies will be involved, including the FSA as well as the Ministry of Justice as this matter concerns rights and obligations. Although we will provide support and suggest ideas, this is basically a matter to be left to the voluntary decision of private-sector parties, so I would like to refrain from saying anything definite for the moment. However, in light of the difficult situation of the disaster victims, we will seek to obtain the understanding of and encourage efforts by the parties concerned so that the guideline can be formulated at an early date.

In particular, we intend to ensure full discussions including on the issue of blacklisting. Ultimately, that is a matter to be decided based on consultations among private-sector parties. For my part, I hope that this matter will be dealt with from the standpoint of disaster victims with the issue of blacklisting in mind and with due consideration given to the rights of the victims, as this is a natural disaster, a once-in-a-millennium tsunami, and there is no fault with the victims themselves.

Q.

I am Namikawa from Toyo Keizai.

I understand that the double loan problem refers to the burden of an old loan coupled with that of a new one. Apart from that problem, there is the issue of capital buffer under the Act on Special Measures for Strengthening Financial Functions: when a company borrows a new loan, cash flow must be generated, namely a business must be started. In short, that is the post-disaster recovery. Are the recovery scheme, the Act on Special Measures for Strengthening Financial Functions and the double loan problem being discussed in relation to one another within the government?

A.

I think that they are properly being discussed in relation to one another. A paper issued by the government lists various items regarding the policy for dealing with the double loan problem. Of course, the Act on Special Measures for Strengthening Financial Functions is included as a major item related to financial institutions. As the government properly recognizes its importance, it is mentioned in the paper.

Q.

That paper describes arrangements for the forgiving of debts. Namely, it does not concern how to deal with the double loan problem but how to resolve the problem of existing debts. The double loan problem is a problem that arises when a company needs a new loan to start a new business.

A.

As you know well, if the capital base is strengthened, the range of options will be expanded. Even if a financial institution wants to forgive a loan on a factory machine swept away by the tsunami, it may not be able to do so unless its capital base is strengthened. Although this is up to managers of private financial institutions to decide on a case-by-case basis, if the capital base is strengthened, reducing or forgiving existing debts may be added to the range of available options. Therefore, we have been enforcing the Act on Special Measures for Strengthening Financial Functions, so these matters are closely related to each other. If financial institutions have only barely sufficient capital, capital may be eroded soon. So, they are related matters.

Q.

I know what you mean. However, although I think that the promulgation of the amended Act on Special Measures for Strengthening Financial Functions is admirable, it is unclear what will be done next on the basis of this excellent law.

Although I know what you mean, the situation is such that people whose debts are forgiven cannot start a new business. Unless a company generates cash flow, it cannot borrow a new loan. My point is this. Although the Act on Special Measures for Strengthening Financial Functions is an excellent law, it is unclear how it is strategically positioned. I am asking you whether there is any strategy.

A.

As you know, all those matters are related to each other. I hear that restoration and reconstruction goals for the whole of the disaster areas are being set, and I think that various methods and ideas are bring tried, including utilizing unique local features and reviewing the industrial structure. In the meantime, there are many people saddled with old loans who cannot bring themselves to make a fresh start by taking out new loans. I met such people. There are many people who would like to make a fresh start but who will have to start from negative territory and so I hope that at least, they can start from zero. Unless they can start from zero, they will be demoralized. People in the Tohoku region now tend to lose hope. So, I would like to say to them, “We will support financial institutions, so don't lose hope.” Supporting financial institutions is not the same as bailing them out. Financial institutions may proactively take a wide variety of measures, including providing loans to SMEs and forgiving debts. In the case of housing loans provided by non-private financial institutions, interest payment may be waived indefinitely.

Unless the double loan problem is comprehensively resolved, indebted people who must start from negative territory cannot bring themselves to start a new business. In that sense, the double loan problem is important, so we are considering various ideas. There are some managers who are willing to start a new business if the double loan problem is resolved. In the fishery product processing industry, some people have already started a business. The parts constitute the whole and the whole comprises the parts, so if the parts are strengthened - although keeping harmony for the whole is important - I am sure that the Act on Special Measures for Strengthening Financial Functions will significantly contribute to the restoration and reconstruction of the disaster areas.

Q.

I am only half satisfied by your reply. I will ask you about this again next time.

Q.

As one of the purposes of the meeting of the Financial System Council this afternoon, you cited the strengthening of international competitiveness. Do you have in mind anything specific, such as a region and profitability, that may strengthen competitiveness?

A.

Rather than commenting on that myself, I would like to leave it to learned experts and experienced business managers attending the meeting to hold substantive discussions on that.

(End)