Press Conference by FSA Commissioner Takafumi Sato
May 18, 2009
[Opening Remarks by FSA Commissioner Sato]
I do not have any particular statements to make. Please ask me questions.
[Questions and Answers]
Last weekend, cases of infection with the new type of influenza were confirmed in Japan, and the government held a meeting on how to deal with the outbreak. In particular, a financial institution has taken countermeasures as an employee at a branch in Hyogo Prefecture in the Kansai region was infected. Is the FSA (Financial Services Agency) aware of other financial institutions whose employees were infected and which have taken countermeasures? Also, could you tell us about the measures the FSA will take, although a press release was issued earlier today?
Regarding business sectors under the FSA's jurisdiction, it was confirmed yesterday, May 17, that an employee at Bank of Tokyo-Mitsubishi UFJ's Sannomiya branch in Hyogo Prefecture was infected with the new type of influenza. In response, in order to minimize the of infection spreading to customers who visit the branch, the bank has so arranged that employees of the branch other than managers stay at home in principle as a precaution and has continued operations at the branch with substitute staff members, and the bank also announced that it may advise customers to go to neighboring branches depending on circumstances. We have not so far heard of a confirmation of cases of infection at any other financial institution. I understand that other financial institutions are conducting business operations as usual.
In any case, I understand that financial institutions in the affected regions have introduced measures to reduce the opportunity of infection or are considering doing so. Specifically, such measures, as I understand it, include promoting the wearing of masks, hand-washing, gargling, body temperature measurement before commuting by employees as well as requiring employees with fever to stay at home, limiting outside visits to a necessary minimum, allowing flexible-time work schedules and commuting by car, bicycle or on foot and refraining from holding seminars and other public events.
As for the FSA's actions, the government decided the ''Confirmed Points'' at a meeting of senior officials of the Headquarters for Countermeasures against Influenza A (H1N1), which was held on Saturday, May 16, and, in light of those points, the FSA requested financial institutions to consider ways to reduce the opportunity of infection by employees in regions where infected employees worked and the opportunity of infection in their work processes.
The FSA will continue to collect information concerning how individual financial institutions are dealing with the situation and encourage them to take appropriate measures with due consideration of the need to maintain their role in society.
Last Friday, Mizuho Financial Group, a major bank, announced a plan to raise up to 600 billion yen in capital on its own by issuing common shares. Minister Yosano has suggested at a meeting held at the Prime Minister's Office that major banks too should use public funds. For the past one month or so, there have apparently been behind-the-scenes moves related to the use of public funds. What do you think in this regard?
I am aware that last week, Mizuho Financial Group announced a capital-enhancement plan, including a shelf registration related to the issuance of common shares worth up to 600 billion yen. I would like to refrain from commenting on this, as an individual financial institution's capital policy is a matter that concerns business judgment.
Generally speaking, it is important that financial institutions enhance their capital in order to strengthen their financial foundation in light of the current economic situation. Also, I believe that such a move will be in line with what is being internationally discussed about banks' capital.
As for your question concerning the application of the Act on Special Measures for Strengthening Financial Functions, having financial institutions take advantage of this act is not an end in itself, but rather, this act, as I understand it, is intended to enable banks to properly exercise their financial intermediary function and thus support the function. Fundamentally, the capital policy concerns individual banks' independent business judgment, and capital should be raised from the market, on a commercial basis. I believe that it is significant that the Act on Special Measures for Strengthening Financial Functions exists as a safeguard in case it becomes difficult to raise capital from the market.
In any case, it is extremely important that individual financial institutions conduct appropriate governance regarding their capital policy voluntarily as part of a forward-looking management approach.
The earnings reporting season peaked last week, not only for financial institutions but also for business corporations. There was speculation that after the start of the earnings reporting season, a ''May crisis'' might arise from financial institutions moves' to curb new loans. Could you tell us how you view the current situation?
The meaning of the so-called May crisis may vary somewhat depending on who is using the word. My understanding is that this reflected concern that a succession of companies would report huge losses for the business year ended in March, leading to a series of credit rating downgrades, prompting auditing firms to attach notes concerning the going concern assumption to numerous companies' financial statements and triggering a stock market plunge, all of which may in turn induce banks to curb new loans and cause many clogs in the flow of funds in the channels of direct financing, such as the markets for corporate bonds and CP (commercial paper).
While a succession of companies have reported huge losses indeed, this has not necessarily led to a massive wave of credit rating downgrades. In addition, there has not been a rush to attach notes concerning the going concern assumption to the audited companies' financial statements. Nor have stock prices, as measured by the Nikkei average, plunged, as the average stayed between 8,000 and 9,000 in April and has stayed above 9,000 so far in May, although there have been ups and downs on a day-to-day basis and we cannot say for sure that this situation will continue. Also, I understand that banks have not necessarily moved quickly to curb new loans. Furthermore, we have detected signs of a recovery in the corporate bond and CP markets since April, partly as a result of the implementation of measures related to policy-based finance.
Therefore, although we are still at the midpoint of May, the ''May crisis'' as I described earlier has not materialized, and in light of the various circumstances that I mentioned, there are not any factors that lead us to judge that the situation will deteriorate rapidly.
Last Saturday, Mr. Hatoyama was elected as a new leader of the Democratic Party of Japan. He has been advocating a departure from politics controlled by bureaucracy. For example, he has proposed hiring private-sector people for senior government posts and conducting personnel performance assessment semiannually as well as abolishing the practice of ''amakudari.'' What do you think of those proposals?
I am not in a position to comment on the proposals.
In the United States, proposals for centralizing the settlements of OTC (over-the counter ) derivatives and imposing some capital requirements on financial institutions involved in trading of such derivatives were submitted to the Congress. What do you think of the proposed regulatory measures? Also, could you tell us about the status of the preparation of a plan by the Tokyo Financial Exchange and the TSE (Tokyo Stock Exchange) to start operating a clearing organization for CDS (credit default swaps) in 2010?
I am aware that on May 13, the U.S. government proposed a comprehensive regulatory framework for OTC derivatives.
The proposal would require that all standardized OTC derivatives be cleared through a central clearing organization and that all such derivatives be traded on exchanges. It would also require that derivatives not cleared through a central clearing organization be reported to a trade repository and all other firms, and that dealers and other firms who create large exposures to counterparties be subject to a robust regime of prudential supervision and regulation, including capital requirements and margin requirements. Furthermore, it calls for measures to ensure the prevention of market abuses.
From a broad perspective, an agreement was reached at the recent London summit (the second Summit on Financial Markets and the World Economy) that systemically important financial institutions, markets, and instruments should be subject to an appropriate degree of regulation and oversight. In this context, we can interpret that the proposal made at this time represents a framework of regulation and oversight regarding OTC derivatives. I think that it could affect financial transactions depending on how the framework is designed. We can well understand that this is aimed at reducing risks involved in OTC derivatives transactions and contributing to the enhancement of the transparency of the entire market.
In any case, I understand that the U.S. government has expressed an intention to cooperate with the authorities of other countries so as to encourage them to take similar measures. The FSA intends to continue active participation in international debate on this matter and believes that it is necessary to fully examine the possible impact of this proposal on the Japanese and global derivatives markets.
In any case, the FSA will actively participate in debate on this matter from the viewpoint of protecting investors and ensuring an adequate exercise of the functions of the capital market as well as reducing risks for the entire financial market and enhancing the transparency of the market, as I mentioned just now.
As for debate on the establishment of a clearing organization for OTC derivatives in Japan, as you know, the Tokyo Stock Exchange group and the Tokyo Financial Exchange are conducting a study with a view to providing clearing service regarding OTC derivatives.
I believe it is significant from the viewpoint of ensuring the transparency of the OTC derivatives market and reducing counterparty risks that organizations that provide the settlement infrastructure, such as an exchange and a clearing organization, provide clearing service. While I hope that debate on this matter will deepen among the parties concerned, including market players, I believe that the FSA also needs to conduct an adequate study so that a better framework can be designed.
In relation to countermeasures against the new type of influenza, has the FSA taken any specific measures, such as expanding the parking space for bicycles used by employees commuting by bicycle and stockpiling more masks? Also, what specific requests, if any, has the FSA made to financial institutions with regard to the continuation of over-the-counter services in the event of a widespread outbreak of infection, although the BOJ (Bank of Japan) may be mainly responsible for such affairs.
Regarding your second question, as individual financial institutions have a role to play in society, of exercising the financial intermediary function and providing the infrastructure for settlements as I mentioned earlier, it is very important to pay attention to the need to maintain such public functions. The important thing to do is to strike a fine balance between paying attention to matters like that and minimizing the risk of infection by taking into consideration the overall circumstances.
Although I do not have with me materials concerning the specific requests that the FSA made to the financial industry with regard to the maintenance of such functions, our basic stance is as I explained earlier. As for the case of Bank of Tokyo-Mitsubishi UFJ that I mentioned earlier, employees at the Sannomiya branch, who have a relatively high probability of being infected, are staying at home while employees from other branches are substituting for them so as to maintain that branch's operations as much as possible. I have been told that the branch is continuing to allow customers to use ATMs after disinfecting them, so Bank of Tokyo-Mitsubishi UFJ is apparently striking a certain balance between minimizing the risk of infection and continuing its public functions.
As for your question concerning FSA employees, we will consider what measures to take while paying attention to the overall circumstances.
In relation to the Act on Special Measures for Strengthening Financial Functions, some regional banks announced that they were considering applying for public funds or that they would revise the articles of incorporation as an emergency precaution. I understand that you have been calling on financial institutions to revise their articles of incorporation as a precaution for future needs even if they do not need additional capital for the moment. What do you think of the fact that despite your call, the number of regional banks that have applied for public funds is less than ten?
It is very wise to revise the articles of incorporation as a precaution so as to put in place a framework for receiving capital quickly in emergency through the issuance of preferred shares based on the Act on Special Measures for Strengthening Financial Functions. I am aware that on May 15, three banks, Nagano Bank, Tottori Bank and Shimane Bank, announced that they will partially revise their articles of incorporation at regular general shareholders' meetings to be held in June so that they can issue preferred shares in the future.
My assessment of their plans is as I said just now. As for what measures other banks will take, it is up to their business judgment, as that is part of their capital policy. This is not a matter regarding which the FSA should force them to take action.
On the other hand, there remain uncertainty factors related to the economic and financial conditions, so I am renewing my belief that it is wise that as part of their forward-looking management, financial institutions revise their articles of incorporation as a precaution from the viewpoint of maintaining the financial intermediary function as much as possible when various negative circumstances arise.
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