August 8, 2000

Statement on Financial Policy for the Finance Committee,
House of Representatives


Hideyuki Aizawa
Chairman, Financial Reconstruction Commission (FRC)



     I have just assumed office as Cabinet Minister responsible for financial policy in Japan, and I would like to take this opportunity to express my vision and intentions concerning financial policy in Japan.

     The overarching objective of financial policy is to secure the confidence of markets and the public in general in the stability and vitality of the financial system. I am determined to do my best to achieve this objective with the cooperation of the chairman and the members of this committee.

     The FRC has been working to restore stability and vitality in the financial system through quick resolution of failed financial institutions under the Financial Revitalization Law and capital injection into viable institutions using public funds under the Financial Function Early Strengthening Law. With these efforts, the environment surrounding financial institutions has on the whole regained stability. It is, however, necessary to build an even more solid financial system in view of the scheduled termination of full guarantee for all deposits as of end-March 2002. In particular, cooperative financial institutions have been enabled to reinforce their capital base by issuing preferred shares and with public funds until end-March 2002. Such means should be used appropriately.

     With regard to the sale of the temporarily-nationalized Nippon Credit Bank, the final contract with the Soft Bank Group was concluded on June 30 of this year, but there has been criticism as to the scheme for the sale of a bank under public administration, in particular the provision on warranty of loan related assets. Under those circumstances, the FRC, taking into account the wish of the Soft Bank Group as well, decided to postpone the planned date for the sale for one month in order to listen carefully to the debate in the Diet and to public opinion and to deepen their understanding. However, any attempt to revise the provision on warranty of loan related assets would undermine confidence in the financial policy of Japan both domestically and internationally, and the counterpart of the contract, namely the Soft Bank Group has made clear its intention to repeal the contract in that event. In such a circumstance, no other purchaser is likely to appear for the NCB, and if it is sold to the Resolution and Collection Corporation, bankruptcies of small and medium-sized enterprises with loans of NCB and the resultant burden of public funds are likely to increase considerably. This is why it is difficult to revise the provision on warranty of loan related assets retroactively.

     On the problems of Sogo Group, the FRC had made an extremely difficult decision to authorize the Deposit Insurance Corporation to accept a request to forgive debt of the Group, after careful and extensive debate based on the fundamental principle of least cost enshrined in the Financial Revitalization Law. Later on, the Group made a spontaneous decision to withdraw its request for debt forgiveness in view of drastic changes in the business environment surrounding the company. It requested the application of the judicial procedure under the Civil Rehabilitation Law, and appropriate measures for revitalization of the company are to be taken in the framework of the judicial system. As a lesson from this case, the government will handle such cases with extreme caution in the future, in recognition of the principle that debt forgiveness by the government must be allowed only under exceptional circumstances. Utmost efforts will be made to gain the understanding of related parties and the public in the future for similar important cases.

     As you may be aware, the Financial Services Agency has been created as of July 1, with the integration of the Financial Supervisory Agency and the Financial System Planning Bureau of the Ministry of Finance. The new FSA has integral responsibility over planning of the financial system and supervision and inspection of financial institutions. In view of the rapid changes in the environment surrounding the economy and financial markets, the planning of the financial system will focus on building a stable and vigorous financial system, and securing the efficiency and fairness in the financial markets. In the supervision and inspection of financial institutions, further efforts to maintain and improve the soundness of financial institutions will be made. Coordination with foreign financial authorities will be strengthened in order to cope adequately with the globalization of finance.

     With regard to the issue of new types of banks being set up, such as entrants into the banking business from other business sectors, operational guidelines concerning the examination for licensing and supervision of such entities based on the Banking Law was made public after a public comment procedure. The FRC and FSA will appropriately conduct supervision in order to secure the soundness and adequacy of the operation of such new types of banks based on those guidelines. We hope that such moves will contribute to revitalizing the financial system and improve consumer welfare by encouraging innovation of financial technologies and enhancing competition. I have asked the Financial System Council to start deliberating a revision of the relevant laws and deregulation of activities of banks on an expeditious basis.

     As mentioned above, the FRC and the FSA will conduct transparent and fair policy based on clear rules under market discipline and self responsibility and will do its best in designing the financial system of tomorrow.


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