Provisional translation

Press Conference by FSA Commissioner Takafumi Sato

January 5, 2009

[Opening Remarks by FSA Commissioner Sato]

I’d like to wish you a happy new year. I would appreciate your continued kind cooperation this year.

[Questions and Answers]

Q.

Regarding the paperless stock transfer system and the connection of Japan Post Bank’s online system with other banks’ systems, both of which started today, is there anything that you would like to call attention to?

A.

First, regarding Japan Post Bank, its online system was connected with Zengin System (Data Telecommunications System) today as scheduled, and I understand that no particular problems have so far arisen. From the viewpoint of protecting customers, the FSA (Financial Services Agency) will continue to keep a close watch on the systems to check, for example, whether the transfer service is provided to users without disruptions and whether procedures for transfers are implemented without disruptions.

Also today, a shift to the paperless stock transfer system was implemented. I think that until now the system has mostly been operating smoothly. I would like to remind you that during the batch processing this morning at JASDEC (Japan Securities Depository Center), a temporary glitch was found in the setting of the file capacity of JASDEC’s system. However, the glitch was corrected by 11:45 a.m., so settlements for today have been made as scheduled without any delays. The FSA will also keep a close watch on the paperless stock transfer system and make sure that this system is operated smoothly through redoubled efforts to provide necessary information to investors, for example.

Q.

Forgive me for asking you now about what was reported late last year, but could you tell me about what the FSA knows, if any, about a media report that Mitsui Sumitomo Insurance (Group Holdings), Aioi (Insurance) and Nissay Dowa (General Insurance) are negotiating about a possible business integration and about how you view the situation surrounding the non-life insurance industry?

A.

I am aware of the media report that you mentioned. However, I understand that on December 29 and 30, Mitsui Sumitomo Insurance and the other two partners made an announcement to the effect that nothing had been decided and nothing should be announced. As management restructuring moves such as business integration is up to individual financial institutions to decide, I would like to refrain from commenting on specific cases.

Generally speaking, it is very important that individual insurance companies properly identify the challenges they face and engage in forward-looking management. I believe that it is important that insurance companies seek to strengthen their competitiveness and enhance convenience for users by making earnest efforts to establish forward-looking strategies and consolidate their management foundations based on their own management judgments.

Q.

The FSA issued a business improvement order against Shinginko Tokyo on December 26 - forgive me for taking up again what happened last year. What is your thinking in this regard and what do you expect of this bank?

A.

As you said, the FSA issued a business improvement order against Shinginko Tokyo based on Article 26 of the Banking Act on December 26 last year. Shinginko Tokyo has booked huge losses as a result of its pursuit of an excessive business scale and its loan screening and management that relied exclusively on the scoring model, among other factors. To deal with this situation, this bank implemented a drastic reshuffle of the management team, concentrated resources on priority business areas and carried out bold restructuring measures. However, as a result of the examination of inspection results that we provided notice of last October and a report submitted by the bank in relation to the inspection results, we have recognized problems that need to be corrected further with regard to its governance system, legal compliance system, loan screening and management system. Based on the recognition of these problems, we issued the business improvement order. We hope that Shinginko Tokyo will work out and implement improvement measures based on this order and make steady efforts toward management improvement.

Q.

Regarding an amendment bill for the resumption of the purchase of shares held by banks, which was proposed by lawmakers and submitted today by the LDP (Liberal Democratic Party) to the House of Representatives, some people expect this law, even if enacted, would not be actively used because the current stock price downturn has not resulted from the dissolution of cross shareholdings between banks and non-financial corporations. How does the FSA view the submission of this bill and what impact do you expect the massive provision of government guarantees, worth as much as 20 trillion yen, will have on the stock market?

A.

The use of the Banks’ Shareholdings Purchase Corporation was deliberated by the ruling parties as part of the recent economic package, and the use and enhancement of this corporation was included in this package. I understand that today, representatives of the ruling parties submitted this bill to the House of Representatives.

I expect that this scheme will provide a substantial sense of security to the stock market as a whole. While I am aware of the view that you mentioned in your question, I think that how banks will handle their shareholdings will vary, depending on the state of the portfolios of the banks and corporations that hold shares in the banks and on the management policies of the banks and the corporations. In this situation, this scheme is expected to be effective in easing selling pressure when banks and corporations decide to sell their shareholdings in light of the state of their portfolios or based on their management policies. In this sense, as I said earlier, I expect that this scheme will provide a sense of security amid hopes for the stability of the stock market.

Q.

Although stock prices rose today, aren’t you worried that in light of the stock price level at the end of December last year, financial institutions’ capital in the October-December quarter may show a sharp decline or the financial system may be destabilized?

A.

Regarding shares held by individual financial institutions, if prices move up or down, the movement will be reflected in valuation profits and losses, and in the case of an extreme price drop, financial institutions will need to write down the value of their shareholdings, which will affect their financial conditions, as you know. However, the impact will probably vary between financial institutions, depending on the scale of their shareholdings and the composition of issues in their portfolios.

As I probably mentioned earlier, I believe that it is important that individual financial institutions properly manage risks in order to deal with the increasing volatility of the global markets, including the sharp swings in Japan’s stock market, and make efforts to absorb the shocks and maintain their financial soundness. I believe that it is important that financial institutions fully perform their duty of exercising the financial intermediary function by managing risks properly.

Q.

Regarding the revised Act on Special Measures for Strengthening Financial Functions, I understand that the FSA is explaining the contents of this act to financial institutions. Could you tell me about how you are explaining this act and how financial institutions are responding to the explanation?

A.

The revised act was put into force on December 17 last year. Based on the recognition of the importance of widely and quickly communicating the purpose of this act and the contents of the capital injection scheme, the FSA held briefing sessions for financial institutions by the end of last year through Local Finance Bureaus across the country. At the same time, we actively called on relevant organizations to consider using this scheme.

I hope that in order to sufficiently exercise their financial intermediary function as expected by small and medium-size enterprises (SMEs) and other borrower companies, financial institutions will consider using this scheme in light of the current market conditions if they decide to strengthen their capital bases as part of their forward-looking management. Exercising the financial intermediary function, including providing loans to SMEs, is the most fundamental role of financial institutions. As this is an important safety net for the fulfillment of that role, I hope they will positively consider using it.

Q.

Have financial institutions expressed willingness to use it?

A.

It would be premature to comment on their response.

Q.

Am I correct in understanding that briefing sessions at Local Finance Bureaus are not held separately with individual financial institutions but that parties who request briefings are brought together to a large conference for briefing on the outline of the screening process and major points of the legal revision? Also, do you know how many financial institutions attended the briefing sessions held across the country?

A.

I would like to refrain from commenting on specific exchanges of communications with financial institutions. Regarding how to organize briefing sessions, which are held on a region-by-region basis, a Local Finance Bureau-by-Bureau basis or a prefecture-by prefecture basis in some cases, the most common method is probably bringing together all financial institutions in a certain region to the same site for briefing and for questions and answers. Regarding how many financial institutions have attended the briefing sessions, although I do not know the precise number, I believe that most financial institutions have attended them. Of course, in our daily supervisory activities, we may use methods other than bringing together relevant parties to the same site for briefing, such as making contacts of a stronger face-to-face nature. I would like to remind you that bringing all relevant parties together to the same site is not the only method available.

(End)