Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Tuesday, August 28, 2012, from 9:52 a.m. to 10:09 a.m.)

[Questions & Answers]

Q.

Yesterday, Aozora Bank announced a recapitalization plan in relation to the repayment of public funds. The plan centers on the extension of the conversion period. Could you comment on the plan?

A.

Yesterday, Aozora Bank announced a recapitalization plan and the vision of its future called “Where Aozora Goes from Here,” as you mentioned. I am aware of the announcement. I would like to give positive evaluation to this initiative as a reflection of Aozora Bank's resolve to repay the public funds it received based on its own capital policy while maintaining sound management and taking account of the market condition.

Deposit Insurance Corporation will conduct deliberation on this scheme in line with the prescribed procedures. Giving positive evaluation to this initiative, the FSA will also take appropriate action.

Q.

I have one more question. Last weekend, the FSA ordered the Tokyo Stock Exchange (TSE) to improve business operation in relation to the system glitch. Could you tell me about your view on this matter?

A.

First, the system glitch that occurred at the TSE on August 7 (Tuesday) led to the suspension of some transactions at the exchange, which is part of the critical market infrastructure, restricting trading opportunities for investors. Second, a previous system glitch had occurred at the TSE only in February this year, so the situation is so grave that investors' confidence could decline. Therefore, the FSA regards the latest glitch as very regrettable.

The FSA required the TSE to submit a report, and closely examined the content of the report. As a result, we ordered the TSE to improve business operation on August 24 (Friday), as you know, based on the first sentence of Article 153 of the Financial Instruments and Exchange Act. We told the TSE to properly implement improvement measures. To that end, we issued the business improvement order.

The improvement order comprises three items, which I will not mention as I presume that you already know them.

Q.

This morning, a media report said that the Financial System Council will discuss how to enable the government to inject public funds into securities and insurance companies when their business conditions have deteriorated. Could you tell me specifically what the council will discuss?

Apart from the deliberation by the Financial System Council, what is your stance on this matter?

A.

I am aware of the media report that you mentioned. At this time, the Financial System Council is not considering the specifics of any revision of the current system with prejudgment. That is also my stance as the minister in charge.

First of all, I believe it is important for the Financial System Council to review Japan's current system in light of the key attributes as defined by the FSB (Financial Stability Board) and conduct full deliberation while taking account of international developments related to financial regulation. So, we are not considering anything specific with prejudgment.

Q.

Let me ask you about Aozora Bank again. Why have you agreed to the extension of the conversion period, which I think is an unprecedented measure? Won't there be any problems in light of the cases of other banks? Will this set a precedent for the future?

A.

I am not aware of other cases in which a similar repayment scheme to the one announced by Aozora Bank was proposed.

Under the scheme that Aozora Bank announced, the bank showed a clear path to full repayment after securing funds for repaying public funds. I understand that that is the basis on which the bank is requesting the extension of the conversion period.

In any case, Deposit Insurance Corporation will conduct deliberation in line with the prescribed procedures. Giving positive evaluation to this initiative, the FSA will also take appropriate action.

As I already mentioned, Aozora Bank has proposed this repayment scheme, has secured funds for repaying public funds under this scheme, and is requesting the extension of the conversion period after showing a clear path to full repayment. Therefore, we give positive evaluation to this initiative.

Q.

In relation to the TSE's system glitch, the TSE plans to carry out business integration with the Osaka Securities Exchange (OSE) next January. As this glitch occurred only months before the business integration, doubt has been raised over whether the plan will go according to schedule. What is your view on that?

A.

The latest glitch should not have occurred, given that the previous glitch took place only in February. At that time, we did not issue a business improvement order. We required the submission of a report to review the status of governance. As this is the second time, we have issued a business improvement order. I hope that the TSE will understand our message included in this business improvement order, including our call for appropriate efforts to prevent system glitches when the TSE starts functioning as a comprehensive exchange as a result of its business integration with the OSE.

Q.

Don't you have any concern as to the schedule of the plan?

A.

I hope that the TSE will reflect on this problem and make appropriate efforts, so we will keep a close watch on the exchange's activities. We will receive reports from the TSE and closely examine this case.

Q.

I am Namikawa from Toyo Keizai.

I would like to ask you about Aozora Bank.

You said that Aozora Bank deserves positive evaluation for announcing the capital policy and describing the vision of its future. However, it is a long time since public funds were injected into the bank. Wouldn't you think that the Japanese people, who shoulder the cost of the public fund injection, will wonder what this bank has been doing until now? I can understand that you give positive evaluation to the announcement of such plans, but this is something like a repayment rescheduling. What do you think of the fact that the bank has to make such an announcement at this time?

Moreover, some people say that Aozora Bank's way of doing business is very rough. From what I hear - I do not know whether this is a minority or majority view - that this bank is not doing business in a very careful way as it is required as a merchant bank.

After a long time has passed, the bank has reviewed the situation and has drawn up a new plan for full repayment. Full repayment is important, indeed. But what do you think of the question of what this bank has been doing until now?

A.

This may be evaluated in various ways, although I would like to refrain from making specific comments.

In any case, Aozora Bank itself has announced the vision of its future. It has also announced a recapitalization plan, so I give positive evaluation to the plan as a reflection of its resolve to move forward, including with regard to the repayment plan.

Q.

Let me ask one more question to make sure.

Will this be the last and only time that the repayment plan has to be revised?

A.

I will refrain from making comments. But I give positive evaluation to Aozora Bank for securing funds for repayment and setting the goal of full repayment with a firm resolve. Although I will not say whether this will be the last and only time, I would like you to understand that I give positive evaluation to this initiative.

Q.

Don't you recognize this as an extraordinary case? Isn't it extraordinary?

A.

I would not say whether or not it is extraordinary. However, as we give positive evaluation to Aozora Bank for announcing a recapitalization plan and the vision of its future, we are dealing with its case in this way.

Q.

Forgive me for sticking with this matter.

I previously asked questions concerning this matter, in relation to the three principles of the injection of public funds. I understand that you said the FSA always conducts strict checks in that respect. Regarding the announcement of the recapitalization plan, may I take it that more strict checks will be conducted based on the three principles?

A.

Naturally, that is correct.

Thank you very much.

(End)

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