Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, December 16, 2011, from 11:34 a.m. to 12:00 p.m.)

[Opening Remarks by Minister Jimi]

Yesterday, I visited Osaka City to grasp the local economic condition and business environment. I had a frank, useful exchange of opinions with senior officials of four associations of small and medium-size enterprises (SMEs), including the Osaka Chamber of Commerce and Industry, and managers of regional financial institutions.

In the exchange of opinions, regarding the business environment for SMEs, I was told that although recovery from the impact of the earthquake is proceeding, the business environment is generally harsh given the decline in exports due to the strong yen and the flood in Thailand.

While officials of the SME associations expressed hopes for the SME Financing Facilitation Act, representatives of financial institutions told me about the achievements of the serious efforts that they have made over the past one and a half year in relation to this law.

The Financial Services Agency (FSA) is resolved to continue efforts toward the facilitation of financing for SMEs while taking account of their opinions.

In addition, as the Minister for Postal Reform, I visited the Kinki branch office of Japan Post Network Co. and exchange opinions about the situation in the frontlines of business. In addition, I held a press conference in Osaka yesterday.

I would also like to make a statement concerning Olympus.

As I have repeatedly stated, it is highly regrettable from the viewpoint of market fairness and transparency, that the Olympus Corporation has been engaged in deferring the posting of losses from securities and other investments for many years.

It is troubling to see investors, both domestic and abroad, question the fairness and transparency of the Japanese financial markets, and thus I have requested the Olympus Corporation to get to the bottom of the affair and promptly disclose accurate information - I believe it is not appropriate to judge that all the listed companies and financial markets in Japan are not well-disciplined, based on this incident regarding the Olympus Corporation.

Following the request, the Olympus Corporation submitted corrected securities reports for the last five years on December 14, based on the findings in the report by the Third Party Committee published on December 7.

In order for Japanese companies to achieve sound and strong growth, it is essential that we restore investors' confidence in the Japanese financial markets. As the Minister of State for Financial Services, I am committed to doing everything in my power to move it forward.

That is all I have to say.

[Questions & Answers]

Q.

Regarding your visit to Osaka, you said that two lines of opinion had been expressed. What is your thinking as to whether or not to extend the SME Financing Facilitation Act in light of those lines of opinion?

A.

As to what to do with the SME Financing Facilitation Act, including whether or not to extend it, we will make careful judgment while fully taking account of Japan's economic conditions, SMEs' fund-raising situation and financial institutions' efforts toward the facilitation of financing. While I visited Osaka yesterday, the Senior Vice Minister is scheduled to go to a certain region next week. The Parliamentary Secretary is also considering going to another region, depending on circumstances, in order to hear local voices even though he is busy with work related to the tax system.

Yesterday, I talked about various things and listened to various opinions. What impressed me was, as I said at yesterday's press conference, that a few officials of financial institutions told me about the reluctance of megabanks to provide syndicated loans with regional banks and Shinkin banks before the enactment of the SME Financing Facilitation Act because they regard it as their basic mission to provide large-scale loans to major companies.

It is 18 months since I took office as the Minister for Financial Services. Some time after I took office, 15 or 16 months ago, I had meetings with younger FSA staff members who had returned from the Kanto Finance Bureau. I remember a staff member saying, “Previously megabanks never participated in gatherings of regional financial institutions, and yet after the enactment of this law, megabanks started to participate.”

That remark has made a vivid impression on me, and yesterday a few officials of financial institutions happened to tell me a similar story in relation to syndicated loans. They said that megabanks started to participate in discussions about syndicated loans. As a result of the enactment of this law, even major banks started to pay due attention to financing for SMEs. That was what strongly impressed me about what I heard from officials of regional banks, Shinkin banks and credit cooperatives.

Q.

I have one more question, which concerns the Olympus case. I understand that the FSA will make efforts to prevent the recurrence of a similar misconduct in cooperation with relevant parties. Could you tell me about the timetable for future actions, including whether you will submit a relevant bill to the ordinary session of the Diet next year with regard to matters that require legal amendments, for example?

A.

This time, I talked about matters that apparently need to be reviewed and deliberated in the future in light of the Olympus case. We will not immediately set forth concrete measures regarding those matters. Rather, as we will need to hold discussion and cooperate with relevant parties from now on and to take account of the progress in the examination of this case, I would like you to understand that it is difficult for me to say anything definite at this time.

Q.

When you talked about the preventive measures related to the Olympus case, you mentioned exchanges' rules. Depending on circumstances, will you consider the possibility of seeking revision of both exchanges' rules and the FIEA's provisions regarding information to be disclosed in securities reports?

A.

Under the Tokyo Stock Exchange's rules, it is required that at least one independent executive who has no risk of having conflicts of interests with ordinary shareholders be on the board. In the Olympus case, although there was such an independent executive, it has been pointed out that the executive did not adequately exercise his function. In light of that, we believe that it is necessary to conduct an appropriate review of exchanges' rules and disclosure rules.

As to whether or not to amend the FIEA, we will conduct detailed deliberations on measures to prevent the recurrence of a similar misconduct from now on, so I cannot say anything definite at this time as to what those measures will be.

Q.

In relation to that, although you said that detailed deliberations will be conducted from now on, the Third Party Committee has already pointed out problems. What problems do you recognize yourself in this case as you consider amendments of institutional systems?

A.

As I said earlier, it is highly regrettable that the Olympus Corporation has been engaged in deferring the posting of losses from securities and other investments. I think that it is very important that the company get to the bottom of the affair and promptly disclose accurate information and that the FSA strictly deal with this case based on law and evidence. We are in the process of getting to the bottom of this case, and I believe it is not appropriate to judge that all the listed companies and financial markets in Japan are not well-disciplined in light of this isolated case alone. It is troubling to see investors, both domestic and foreign, question the fairness and transparency of the Japanese financial markets because of this case. In order to ensure market fairness and transparency, the FSA has been making ceaseless efforts to upgrade its financial market system through successive amendments to the FIEA. If points to be improved are found as a result of the investigation of this case, we will take appropriate actions.

Q.

I know that the investigation is still ongoing. However, as you have reaffirmed your intention to consider amending institutional systems and laws, I would like to know what problems you recognize and what points you will strengthen.

A.

We will make improvements if points to be improved are found, and there are various ways of making improvements. As I have been saying from the beginning, we would like to take appropriate action in that respect.

Q.

At a press conference yesterday, Chairman Nagayasu of the Japanese Bankers Association admitted that banks that failed to detect problems in the Olympus case should bear social and moral responsibility. In your statement, you did not refer to the possibility of pursuing the responsibility of creditor banks. Is it possible that you will pursue the responsibility of banks or strengthen regulation through the reform of institutional systems?

A.

At the previous press conference, I received a similar question. I would like to refrain from commenting on specific loans provided by individual financial institutions. However, generally speaking, it is true that formerly, the main creditor bank system - which was employed by most Japanese companies when I became a Diet member 28 years ago - played a certain role in exercising governance over the management of borrower countries.

However, in the Japan-U.S. SII (Structural Impediments Initiative) talks, which followed the Maekawa Report on economic structural reform, issued during the era of the Nakasone cabinet if I remember correctly, cross shareholdings and “keiretsu” corporate grouping were harshly criticized by the United States. However, my understanding is that now, there are limits to financial institutions' ability to detect inappropriate practices at borrower companies by collecting information other than publicly disclosed information.

In any case, I think that it is important that financial institutions collect information other than financial data from as far and wide as possible and make appropriate management decisions.

Q.

Regarding the responsibility of Olympus' creditor banks, if we say they should bear responsibility, it appears to be too harsh a judgment, and yet if we say they have no responsibility, it would imply that their management is very careless. Yesterday, Chairman Nagayasu of the Japanese Bankers Association admitted to the creditor banks' social and moral responsibility. I would like to know about your view on the banks' responsibility in this case. I do not think that the situation is such that you can continue to avoid commenting on this case until some facts are identified. Unless you make comments now, it would give the impression that banks no longer bear any social responsibility or have any public role to play. Could you offer your comments?

A.

As I said just now, companies used to have their own main creditor banks. As I served as the parliamentary secretary for international trade and industry 22 years ago, I had frequent contacts with companies and I know that main creditor banks had significant influence. It was not unusual for main creditor banks to replace the boards of directors at borrower companies with poor business performance.

However, that system was criticized strongly as an example of keiretsu corporate grouping, so generally speaking, banks' grip of power over borrower companies has weakened compared with former times. While I refrain from commenting on specific cases, generally speaking, banks must serve public good and interests as stipulated in the Banking Act. Regardless of that, there are business ethics.

After the Lehman Shock occurred three years ago, the attitude of pursuing only monetary gains was strongly questioned. Against that background, “public interest capitalism” and the philosophy of the Baigan Ishida School are attracting renewed attention, as I mentioned previously. The philosophy of the Baigan Ishida School, which was established in Osaka in the Edo period, was something like a mix of business ethics and Confucianism, and it has apparently lived on to date. Osaka has been a commercial and economic center of Japan ever since the Edo period, and it is true that there has been certain business ethics there. In light of that history, I believe that it is important that financial institutions collect information other than financial data of client companies from as far and wide as possible and make appropriate business decisions.

Q.

Today, you declined to comment on specific cases. Are you willing to offer your thoughts sooner or later on whether the creditor banks bear responsibility in the Olympus case if the circumstances become clearer?

A.

It is not clear how this case will play out, as the SESC is apparently investigating various matters. As I have repeatedly said, in principle, either the Prime Minister or the FSA Commissioner is not allowed to give instructions to the SESC. As the SESC is an independent organization, the FSA has influence over it only with regard to budgetary and organizational affairs. As I said previously, this is an issue that lies on the border between the power of the state and the liberal economy, so it is very important. Therefore, I would like to refrain from commenting with prejudgment on matters concerning individual companies at this time.

Q.

The Banking Act places considerable emphasis on public interests and the FSA and you, as the Minister for Financial Services, are responsible for oversight on that. Your argument that you cannot comment on specific cases does not quite satisfy me. I intend to continue asking you about this case in the future in relation to banks' responsibility.

A.

I will keep that in mind.

Q.

Let me ask you again about the matter that was mentioned just now. The heart of the matter is not the SESC's independence but banks' lending practices. What is clear about this incident is that Olympus committed an illegal act by kicking back funds through excessive payments for M&A deals. The fact that the creditor banks increased loans in relation to that has become clear through publicly disclosed information. Therefore, I would like to ask you again as to whether you are willing to conduct further inspection of banks and your view on the banks' responsibility. This is not an issue concerning either keiretsu corporate grouping or the SESC's independence.

A.

As the investigation is ongoing, various news articles have been carried by mass media. However, the FSA believes that it is essential to get to the bottom of this case. I regret to say that it is not appropriate for me to comment now on matters concerning individual companies in my capacity as the head of the financial supervisory agency.

(End)