Press Conference by FSA Commissioner Takafumi Sato
June 15, 2009
[Opening Remarks by FSA Commissioner Sato]
I do not have any particular statements to make.
[Questions and Answers]
I understand that regarding immediate financial stabilization measures, an agreement was reached at a meeting of G-8 (Group of Eight) Finance Ministers in Lecce, Italy, to establish the so called Lecce framework of common principles and standards of conduct for international companies and financial institutions. Could you tell us about your view on this in light of the discussions so far conducted between financial authorities?
At the meeting of the G-8 Finance Ministers, which was held in Lecce, Italy, on June 12–13, an agreement was reached to establish the Lecce framework of common principles and standards of conduct for international companies and financial institutions, as you mentioned. Discussions on the rebuilding of the regulatory framework to prevent a recurrence of the financial crisis have also been held at G-7 meetings (meetings of Group of Seven Finance Ministers and Central Bank Governors) and G-20 meetings (meetings of Group of 20 Finance Ministers and Central Bank Governors and Group of 20 summit meetings) since last year.
I presume that the agreement reached at the G-8 meeting held at this time is based on the recognition that for the market economy and the global market to generate sustained prosperity, it is important that fundamental norms, or common principles and standards, are shared so as to ensure self-regulation and market discipline under private-sector leadership in addition to public regulation. Broadly speaking, propriety, integrity and transparency in economic interactions will be advocated under the Lecce framework.
Such common principles and standards are classified into five categories. The five categories are corporate governance, market integrity, financial regulation and supervision, tax cooperation, and transparency of macroeconomic policy and data. Basically, I believe that work has already been accumulated through existing processes in many areas. While I expect that this initiative will be done based on the existing processes, I presume that the purpose of the initiative is to create a comprehensive framework based on the results and achievements already produced. I expect that further debates and work will be done to prepare for a G-8 summit next month and a G-20 summit in September.
For its part, the FSA (Financial Services Agency) will continue to cooperate with relevant authorities in Japan and other countries and actively participate in international debates on ways to prevent a recurrence of the financial crisis and strengthen the financial system.
Regarding North Korea, an agreement was reached at the recent G-8 meeting on the need for effective and timely implementation of financial measures against North Korea as set out in a United Nations Security Council resolution. Could you tell us what actions the FSA may take?
A statement issued at the meeting of the G-8 Finance Ministers said, ''We are committed to the effective and timely implementation of financial measures against North Korea as set out, among other measures, in UN Security Council resolution No. 1874.''
As for the actions that may be taken by Japan, the government as a whole is considering, through close coordination between relevant ministries and agencies, what should be done to enforce this resolution so that appropriate measures can be taken quickly.
This resolution calls for U.N. member states to prevent, through asset freezes and monitoring, any transfer of funds that could contribute to North Korean programs and activities related to weapons of mass destruction and missiles. Regarding measures related to this, relevant ministries and agencies are conducting deliberations with a view to preventing the transfer of funds related to transactions concerning items related to nuclear weapons, missiles and weapons of mass destruction.
As part of this measure, the FSA will consider requesting financial institutions to perform the obligation for customer identification and ensure reporting of ''suspicious transactions'' based on the Act for Prevention of Transfer of Criminal Proceeds.
I understand that the Inspection Bureau and the Local Finance Bureaus are conducting intensive inspections to check financial institutions' moves to curb new loans. Could you tell us about problems common to the banks that are subject to this inspection and about the status of improvements made by them? Also, could you tell us when the inspection will be completed and whether or not the inspection results will be disclosed?
As you know, the FSA is conducting inspection regarding financial institutions' moves to curb new loans. This inspection is targeted at three areas, namely loans to small and medium-size enterprises, loans to middle-ranking and large companies, and housing loans, and it is intended to examine the status of efforts made by financial institutions to facilitate financing in the period leading to the end of the last fiscal year and their status of the provision of credit in the period since the start of the new fiscal year. We are conducting the inspection particularly from the perspective of whether financial institutions are adequately exercising the financial intermediary function that is expected of them and whether they are not engaging in practices that may be construed as inappropriate curbs on new loans and forcible withdrawals of outstanding loans.
As for your question concerning the common problems, the status of improvement and the timing of the completion of the inspection, it would be premature for me to give you any detailed reply, since the inspection is still ongoing. That said, one notable thing about this intensive inspection is that it focuses mainly on the activities at branches and other sites that directly deal with customers. Also notable is that the inspection carefully examines whether financial institutions have changed their stance on lending in a short period of time entirely for their own convenience despite the absence of any change in the credit status of borrowers, and whether they provide economically rational explanations to borrowers when declining to make loans.
Although the inspection is still ongoing, I feel - this is only my general impression - that there are some differences between financial institutions in how carefully the management of borrowers is conducted on a daily basis and to what extent the instructions from the headquarters are enforced at branches, for example.
As to whether or not the inspection results will be disclosed, I should refrain from making any definitive comment at this time as the inspection is ongoing. However, whether or not the results will be disclosed will depend on whether there will be anything suitable for disclosure. I would like to refrain from saying what kind of things will be disclosed if disclosure is to be made.
The enforcement of the (amended) Money Lending Act will enter the third stage this week to tighten the conditions for entry into the money lending business. I understand that you are planning a restriction on the total amount of outstanding loans extended to each borrower and a reduction of the maximum allowable interest rate to prepare for the fourth stage of the enforcement. Within the industry, there is still strong opposition to such measures on the ground that they could prevent the circulation of funds to even healthy borrowers. Could you tell us about your outlook on the fourth stage of the enforcement?
As you know, the amended Money Lending Act was enacted unanimously in the Diet in December 2006. The amended act provides for the prevention of borrowers from becoming trapped in a web of multiple debts through the regulation of lenders, and prescribes the staged enforcement so as to avoid causing a severe squeeze on the provision of credit.
Under the staged enforcement approach, the enforcement has already passed the first stage, which strengthened punishments against underground money lenders, and the second stage, which strengthened regulation on the collection of loans. On June 18, the enforcement is scheduled to enter the third stage that you mentioned. In the third stage, the requirement for the financial base of money lenders will be strengthened, the qualifying examination for chief money lending officers will start and the system of designating credit information agencies will be introduced. I understand that steady efforts are underway to enforce this act in line with the legally prescribed staged enforcement that I mentioned earlier.
The FSA will continue efforts to smoothly implement the third stage of enforcement and make steady preparations toward full enforcement while examining the implementation status and the progress in preparations. I understand that the deadline for the full enforcement is legally prescribed.
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