Provisional translation

Press Conference by FSA Commissioner Takafumi Sato

(Excerpt)

January 26, 2009

[Opening Remarks by FSA Commissioner Sato]

I do not have any particular statements to make.

[Questions and Answers]

Q.

On January 23, three non-life insurance companies--Mitsui Sumitomo Insurance, Aioi Insurance and Nissay Dowa General Insurance--announced a basic agreement to integrate their business operations. How do you feel about this deal?

A.

Mitsui Sumitomo Insurance, Aioi Insurance and Nissay Dowa General Insurance announced on January 23 that they have agreed to aim to integrate their business operations in April 2010. As management reorganization moves such as business integration are based on voluntary management judgments by individual financial institutions, I would like to refrain from commenting on specific cases.

Generally speaking, I believe it is important for individual insurance companies to properly identify the challenges they face and engage in forward-looking management. I hope that in doing so, they will make serious efforts to tackle those challenges, including establishing forward-looking business strategies based on their own management judgment and on strengthening their business foundation and, through such efforts, that they will enhance their competitiveness and improve convenience for users.

Q.

Last weekend, there was a media report that the government and the ruling parties will consider establishing a scheme for governmental capital injection not only into banks but also into ordinary companies, and some people are arguing that insurance and securities companies should be made eligible for capital injection. Could you tell us what you think of this media report from the viewpoint of the need for and the urgency of capital injection into insurance and securities companies?

A.

I suppose that the media report you mentioned concerns the revision of the Act on Special Measures for Industrial Revitalization, or the Industrial Revitalization Act, on which the Ministry of Economy, Trade and Industry is now working. While I understand that this new scheme does not preclude any specific industry, I hear that the Ministry is basically bearing in mind companies that find it difficult to raise funds from financial institutions because of a decrease in their capital amount due to the impact of the financial crisis in particular and it is not assuming the application of the scheme to any particular industry for the moment.

Generally speaking, I understand that individual financial institutions, including insurance and securities companies, are making various efforts, including increasing their capital amount, to strengthen their financial foundations based on their own management judgment.

Q.

Earlier today, Kagawa Bank and Tokushima Bank, both of which are based in the Shikoku region, announced that they have reached a basic agreement to integrate their business operations, possibly by April 2010. What do you think of this deal, which would represent a cross-prefectural business integration between two second-tier regional banks?

A.

Kagawa Bank and Tokushima Bank earlier today announced a deal that you mentioned. Of course, as business integration is a matter that concerns the management judgment of individual financial institutions, I would like to refrain from commenting on specific cases. According to the two banks’ announcement, through the business integration, they will aim to “strengthen their business foundation further, build a broad network... and form a financial group that grows together with local customers,” and I regard this as part of their forward-looking management efforts.

As I said earlier, generally speaking, it is important for financial institutions to make serious efforts to establish forward-looking business strategies based on their own management judgment, to strengthen their business foundation and, through such efforts, exercise their financial intermediary function properly and actively.

Q.

I understand that Shinginko Tokyo submitted a business improvement plan this afternoon. Could you tell us about your assessment and opinion of the contents of this plan?

A.

The FSA (Financial Services Agency) issued a business improvement order against Shinginko Tokyo on December 26 last year, as you know, and this bank submitted a business improvement plan today. The items of the business improvement plan are: first, active involvement by the board of directors in the plan’s drafting and in the implementation of improvement efforts; secondly, a thorough investigation of similar problem cases and enhancement of systems for preventing the recurrence of problem cases through checks based on a checklist made in light of the problem cases; thirdly improvement in the ability to make judgments regarding the provision of credit through the examination of specific cases by executive officers themselves and the strengthening of customer relations, such as requiring contacts with customers at least once a month; and fourthly, enhancement of audits intended to prevent problem cases and detect them early.

In the future, the FSA will follow up on the implementation status of the plan by receiving quarterly reports. In doing so, the FSA intends to check whether this bank’s improvement efforts are effective with regard to each item of the plan.

Q.

Do you think that there is little need to establish a scheme for governmental capital injection into securities and insurance companies?

A.

As I said earlier, the Industrial Revitalization Act does not preclude any specific industry. However, I understand that the government is not assuming the application of the scheme to any specific industry, either. What I meant to say is that individual insurance and securities companies have already been making their respective efforts to strengthen their capital bases at times of their own choosing in a manner suited to their own circumstances. In this sense, primarily, individual financial institutions should raise the necessary capital based on their own management judgment, through a market-based approach, so to speak. I just explained that such efforts had already been made from this viewpoint.

Q.

In relation to that question, I understand that with regard to regional financial institutions, the Act on Special Measures for Strengthening Financial Functions is significant because it is difficult to raise capital from the market. How do you view the current market environment for insurance and securities companies?

A.

I do not necessarily believe that it is difficult for regional banks to raise capital from the market. The recapitalization scheme based on the Act on Special Measures for Strengthening Financial Functions has been established as a safety net because we are concerned that in some cases, it will be difficult to raise sufficient capital from the market alone if regional banks are to secure a sufficient capital base in order to exercise their financial intermediary function properly.

As for securities and insurance companies, there is a different safety net from the one for deposit-taking financial institutions, as you know. I understand that until now, securities and insurance companies have tried to maintain and strengthen their business foundations through self-improvement efforts.

Q.

Regarding the business integration between Kagawa Bank and Tokushima Bank, what do you think are the background factors for the integration of financial institutions in a region like Shikoku that faces severe economic conditions? Also, do you expect this business integration will have an impact, including adverse effects, on borrowers in this region, where there is only one regional bank and one second-regional bank in each prefecture?

A.

I understand that for one thing, the business integration is based on the banks’ own management judgment, as I said earlier. In making this management judgment, the banks probably concluded that it would be desirable to achieve synergy effects through the integration, to strengthen their profit bases by making their business operations more efficient and to more actively exercise their financial intermediary function through the strengthened profit bases. In this sense, I strongly hope that these banks will build such a network and use it to enhance convenience for customers and improve the quality of services from the standpoint of customers. I understand that you asked me about concerns that a decrease in the number of financial institutions due to this business integration may narrow the range of choices for users. However, I believe that there are various types of financial institutions in each region, and I hope that these banks will make efforts to avoid practices that would constitute abuse of a dominant position. I think it is important that competition be maintained so as to enable customers to make their own choices.

Q.

The other day, the Supreme Court issued a ruling that indicated a new judgment regarding the statute of limitations related to overcharging by consumer finance companies, raising the possibility that more cases of overcharging may become eligible for claims for refunding of overpayments. What impact do you expect this will have on the soundness of consumer loan companies and other financial institutions? Also, some plaintiffs have said the FSA’s supervisory responsibility should be questioned or expressed their wish to question that responsibility. Regardless of whether a suit will actually be filed against the FSA, what do you think of this viewpoint?

A.

Am I correct in understanding that your question concerns the extinctive prescription of claims for refunding of overpayments?

I understand that the Supreme Court issued its ruling on January 22. The ruling, as I understand it, determined that the period for the extinctive prescription of claims for refunding overpayments arising from a loan based on a so-called revolving contract concluded with a money lender should be counted starting from the time when the revolving contract ended, rather than the time when the repayment was made, namely the time when the overpayment was made, unless there are special circumstances.

Judgment regarding the overpayment cases is a civil law matter, so we would like to refrain from commenting on the judicial judgment regarding the extinctive prescription of claims for the refunding of overpayments. However, the FSA will keep a close watch on this matter both from the viewpoint of ensuring the protection of users and from the viewpoint of how money lenders will be affected. In any case, while it is true that money lenders now face severe business conditions due to an increase in claims for the refunding of overpayments, it is difficult for the authorities to tell how much of a direct impact the latest Supreme Court ruling will have on money lenders.

As for the FSA’s responsibility, I believe that the FSA has taken various measures to protect users as much as possible in accordance with laws and regulations by using the organizations and staff available for us, including the Local Finance Bureaus. The protection of users has always been a major pillar of our financial regulation, so we should continue efforts to take appropriate actions with due consideration of the importance of protecting users.

(End)

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