Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, June 28, 2011, from 10:43 a.m. to 11:06 a.m.)

[Opening Remarks by Minister Jimi]

Before working out the Financial Service Agency's (FSA's) tax system reform requests for fiscal 2012, yesterday, we started soliciting public comments related to such requests concerning matters under the FSA's jurisdiction through the FSA's web site.

The FSA started using the web site to solicit public comments related to tax system reform requests after the change of government so that individuals can provide comments. This is a very good initiative. When I belonged to the Liberal Democratic Party (LDP), I served as vice chairman of the LDP Tax System Research Council for 10 years. As you know, the LDP collected tax system-related requests from industrial organizations and the like but not from individuals.

After the change of government, we started soliciting public comments related to the tax system reform requests from companies, organizations and individuals through the web site. In fiscal 2011, 49 entities and individuals provided a total of 201 comments, including 33 comments from 22 individuals. Individuals' opinions may be minor as a social force. However, opinions have diversified as many people lack a sense of belonging to the organization. Compared with 28 years ago, when I became a Diet member for the first time, the sense of belonging to the organization has weakened very much. To put it in a favorable light, that is a maturing of democracy. It is good that individuals make their own judgment, rather than parroting the opinions of the leader of their organization. Given that reality, this is one of the achievements of the change of government.

Individuals express their own opinions to the government. Although that is nothing extraordinary, the solicitation of public comments through the web site, which was introduced two years ago following the change of government, is a very good initiative. The door may be open just a bit and the opinions thus collected may represent minority views, yet it is good that the government keeps the door open for all the people to voice their opinions.

That is all I have to say.

[Questions and Answers]

Q.

At a meeting of the Group of Central Bank Governors and Heads of Supervision (GHOS) last weekend, agreement was reached on the outline of measures for G-SIFIs (global systemically important financial institutions). I understand that Japanese financial institutions recognized as G-SIFIs will be required to have additional capital. What impact do you expect from that?

A.

On Saturday, June 25, the GHOS held a meeting in Basel, Switzerland, to discuss additional capital requirements for G-SIFIs, which have been the subject of global debate since the Lehman shock and which are described as being too big to fail. From Japan, FSA Commissioner Mikuniya, Bank of Japan Governor Shirakawa and FSA Vice Commissioner for International Affairs Kono attended this meeting.

After the meeting, a press release was issued. It has been agreed that the assessment of the systemic importance will be based on five indicators related to risk factors, including “size” and “interconnectedness,” and that the additional capital requirements are to be met with a Common Equity Tier capital requirement ranging from 1% to 2.5%, depending on a bank's systemic importance, as was reported by newspapers. It has also been agreed that the additional capital requirements will be phased in starting in January 2016, becoming fully effective in January 2019.

The FSA has been arguing that the additional requirements should be well-balanced ones that reflect the level of risks to which individual G-SIFIs are exposed, and we believe that this agreement deserves appreciation as it reflects the Japanese argument.

I understand that the whole set of proposed measures related to G-SIFIs, including the ones agreed upon at this time, will be issued for public consultation around the end of July and that a final conclusion is scheduled to be reached by the G-20 summit in Cannes in November this year. The FSA intends to continue to actively participate in the debate on this matter.

Since I took office as the Minister for Financial Services, I visited the United States and China as well as European cities, such as Paris and Brussels. In 1997 and 1998, when I served as the Postal Minister in the second Hashimoto cabinet, Hokkaido Takushoku Bank and Yamaichi Securities failed. At that time and in subsequent periods, I had a very bitter but valuable experience as a cabinet minister. As I repeatedly say at my press conferences here, although a larger capital base makes banks safer and sounder, they may tighten their lending stance as they seek to increase their capital.

In Kitakyushu City, my hometown, two large department stores operated by Sogo, which failed, were closed. This was a bitter but valuable experience for me as a politician. In that sense, a balanced approach that considers how far soundness should be pursued is important. The more additional capital banks are required to have, the more sound they will be, to be sure. However, that would prompt banks to tighten their lending stance in order to meet the requirement. When I visited other countries, as a man of experience and in charge of financial administration in Japan, I argued that striking the right balance in that respect is very important. I am in agreement with the FSA staff on that point. All along, Japan has been arguing that the capital regulation should reflect the level of risks to which individual G-SIFIs are exposed. The FSA staff told me that the agreement reached at this time reflects what Japan has been arguing based on its experience of and reflection on the financial crisis of around a decade ago, and, looking back at my experiences, I think that it is true.

Q.

I am Sonoda from Hokenmainichi Shimbun.

Could you tell me what the major topics of discussion will be at the meeting of the insurance working group of the Financial System Council tomorrow?

A.

Tomorrow, the working group on the regulation on the group management of insurance companies is scheduled to discuss various points of debate related to such regulation, including regulation concerning the acquisition of foreign insurance companies by Japanese insurance companies.

As for the schedule of discussion, after the first meeting tomorrow, June 29, the working group will meet once or twice each month. When a Japanese insurance company plans to acquire a foreign insurance company, it faces fairly strict regulation concerning businesses other than insurance. The regulation allows activities in some businesses and prohibits activities in other businesses. That is because it is very important to protect insurance users. However, in other countries, insurance business laws are not necessarily as strict as in Japan. In other countries, there are insurance companies that own businesses that would not be allowed in Japan. That may create a problem when Japanese insurance companies plan to acquire such companies, so we are considering whether this situation should be left as it is. This is a major issue in the era of globalization. So, the working group is scheduled to discuss various points of debate related to regulation on the group management of insurance companies, including regulation concerning the acquisition of foreign insurance companies by Japanese insurance companies.

Q.

In relation to G-SIFIs, I presume that the focus of interest for Japanese financial institutions is whether they are recognized as G-SIFIs. Do you think that the three megabanks and major securities groups will be recognized as such?

A.

That is a very practical question. A final conclusion on measures for G-SIFIs will be reached by the time of the Cannes summit in November this year after a public consultation period. At the moment, it is an international agreement that governments should refrain from making any comment on that matter. Although that may be the major issue of interest for you, I cannot make comments.

Q.

I understand that the Committee on the Review of Administrative Actions regarding Incubator Bank of Japan (Nihon Shinko Ginko) was scheduled to work out a final report around early June. Could you tell me when the final report will likely come out, if you know?

A.

As you know, there was a minor change in the cabinet, with Mr. Hosono appointed as a new minister and the Minister of Justice doubling as the Minister of Environment. Although the political situation is fluid, there should be no pause in the conduct of administration, so we are properly doing our part. However, in light of this situation, we would like to be allowed a little more time. I have not a bit wavered from my pledge, made at a press conference at that time, to deal with this matter properly.

Q.

Could you elaborate further on what you mean by “a little more time.”

A.

Although I do not think it will take much time, I would like you to allow us a little more time. While I am grateful for being allowed to continue serving as the Minister for Financial Services, I would like to be allowed a little more time.

(End)