Press Conference by FSA Commissioner Takafumi Sato
March 30, 2009
[Opening Remarks by FSA Commissioner Sato]
I do not have any particular statements to make.
[Questions and Answers]
The G-20 summit meeting (the Summit on Financial Markets and the World Economy) will be held in London on April 2. A statement issued at a meeting of (G-20) Finance Ministers and Central Bank Governors that was held the other day referred to the need for medium-term reform of the regulation on banks’ capital and the registration of hedge funds. In light of this statement, could you tell us what financial regulatory measures you expect will be discussed at the upcoming summit and what proposals and views the Japanese government, the FSA (Financial Services Agency) in particular, will present?
The United Kingdom, which will chair this summit, has not yet announced a detailed agenda. However, as you mentioned in your question, there are some pillars of reform on which an agreement was reached at the first summit that was held in November last year. As for financial regulation and oversight, sound regulation, enhancement of transparency, strengthening of international cooperation, integrity of the market and reform of international organizations have been agreed upon as the pillars, so I expect discussions will be held on these matters.
Holding international discussions on such matters reflects the fact that the current financial crisis originated in the market and spread worldwide, and I think it is necessary that individual countries cooperate with each other in dealing with this situation. I understand that a consensus on the need for such cooperation forms the basis of the previous summit and the summit scheduled for this weekend. I hope that at the upcoming summit, a commitment to working out effective measures toward the common goal of preventing a recurrence of the financial crisis and strengthening the financial system will be confirmed by the G-20 leaders.
As for specifically what measures Japan will propose at the upcoming summit, the prime minister’s policy staff are doing coordination work, so I would like to refrain from making comments.
In any case, the FSA is hoping to make active contributions to international discussions while maintaining cooperation with relevant authorities in Japan so as to achieve maximum results at the summit.
I hear that from April to June, the FSA will conduct intensive inspection focusing on the lending stances of financial institutions. Could you tell us how you view banks’ lending capacity and stances as of the end of the fiscal year and whether it is possible that the FSA will urge banks again to strengthen their capital bases through the inspection, depending on the economic and market conditions?
If we look at the current situation from a broad perspective, Japan’s financial sector itself has been damaged less and remains healthier than the U.S. and European financial sectors. On the other hand, Japan’s real economy is deteriorating very rapidly as confirmed by a variety of indicators. Under these circumstances, we believe that Japan’s financial sector has an increasingly important role to play in supporting the country’s real economy.
Based on this assessment, since the autumn of last year, the FSA has taken a variety of measures, typical examples of which are the use of the Act on Special Measures for Strengthening Financial Functions, an expansion of the scope of restructured loans (which do not fall under the category of non-performing loans) and partial relaxation of the capital adequacy ratio requirement. Also, we announced additional measures on March 10 and started to implement them. Among those measures is the intensive inspection that was mentioned in your question. Furthermore, we requested banks to review the risk weighting related to emergency loan guarantee and to be flexible in applying the covenants (provisions that obligate borrowers to maintain a prescribed level of net assets). We hope that the combined effects of the previous and additional measures will help to promote the appropriate and active exercise of the financial intermediary function of individual financial institutions.
The intensive inspection is a major pillar among those measures. We have decided to conduct the intensive inspection to check the state of the financial intermediary function over a three-month period between April and June based on the recognition that the end of the current fiscal year and the early part of the new fiscal year are particularly important periods for the exercise of that function. The intensive inspection is aimed at shedding light on how financial institutions have been developing a system to exercise the financial intermediary function, but not at intervening in matters concerning banks’ business judgment, such as specific loan transactions. Nor do we intend to force banks to further strengthen their capital bases through the intensive inspection.
In any case, exercising the financial intermediary function to facilitate financing for companies is one of the most important roles to be played by financial institutions, so the FSA will keep a close watch on financial institutions’ activities related to the financial intermediary function in the period up to the end of the current fiscal year and the early part of the new fiscal year.
As the ruling parties have been discussing stock price-supporting measures for a long time, some measures are expected to be announced soon. Among measures under consideration is expanding the scope of items that may be purchased by the purchase corporation (the Banks’ Shareholdings Purchase Corporation). What procedures will the FSA follow if such a measure is formally announced?
Some time ago, the Prime Minister instructed the ruling parties to deliberate what economic measures should be taken, so I understand that the ruling parties are conducting deliberations. While I am aware that there have been various media reports regarding the contents of possible measures, I would like to refrain from commenting on details at this time, as deliberations by the ruling parties are ongoing.
In any case, after the outcome of the deliberations conducted upon the instruction of the Prime Minister — upon the instruction of the representatives of the ruling parties, to be precise — we will consider what we can do as an administrative agency while sharing a resolve to improve Japan’s economic condition based on careful examination of the outcome.
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