Press Conference by the Senior Vice Minister for Financial Services

(Program for Financial Revival)

(Excerpt)

30 October, 2002

Q.

Today, the Minister for Financial Services, Heizo Takenaka finally released the Program for Financial Revival. There are many expressions that sound extremely bureaucratic, such as ''examination will be required'' and ''a request will be made''. Are there prospects to fulfill the Program by the end of this fiscal year?

A.

There are problems that have to be tackled firmly in practical terms, and there are sectors that require further research. In that sense, it clearly states our schedule in concrete terms, so we must do what we have to do towards that goal. It is a matter of making utmost efforts so that the world would think ''Right. Confidence in the Japanese financial system and financial administration is more solid, and confidence in the Japanese financial market is sufficiently established.''

Q.

Does it mean that there are still no concrete deadlines for matters to be ''examined'' and the like?

A.

It means that we will promptly work on them.

Q.

As for the materials submitted this time including tax effect accounting, people widely say ''postponement''. What is your view on this?

A.

It is extremely significant that a highly technical issue like tax effect accounting attracted the attention of so many people and was discussed from various angles.

While that has become evident, this issue is an extremely difficult problem; in other words, the issue must be addressed from three viewpoints, that is, in terms of the tax issue, the business accounting issue and the BIS issue. It appears that the viewpoints required for discussions have become quite clear, aimed at figuring out an approach that can enhance the capital adequacy of Japanese banks, the capital adequacy of major banks sufficiently relative to banks worldwide. As we are to swiftly examine this, we intend to discuss this issue comprehensively including the tax issue and figure out an approach.

Q.

The meetings of Mr. Takenaka's Project Team had no minutes, and were closed to the public. The conclusion is that the outcome of discussions that took place behind closed doors was drawn upon. Do you think it is convincing for the general public?

A.

Upon developing the Program for Financial Revival, Mr. Takenaka wanted to decide on the approach in concrete terms, the basic approach to strengthen the financial administration in the future in his own way, while listening to various opinions, discussions and suggestions by experts, considering that the finance issue has a major impact on the market. It was necessary to take this style also for members of the Project Team to engage in free discussions.

Various suggestions were made for financial revival in the discussions by the Project Team, for which I served as the secretary-general, and in debates at the Diet especially by the ruling parties, as I am also a member of the legislature. We defined the points at issue, and asked whether we managed to fully resolve those points during discussions in the meetings of the Project Team. We also sought opinions from those who were not part of the Project Team in detail, from as many people as possible. We worked hard to develop materials that would enable Mr. Takenaka to make the ultimate decision. In that context, Mr. Takenaka has made the decision, and he announced the Financial Revival Program today, amid the trend to solve the problem based on the unity of the Government and the ruling parties with the understanding of those in the Government and the members of the ruling parties.

Q.

Is it the view of the Financial Services Agency (FSA), the Minister or the Senior Vice Minister that the Action Program was announced with the understanding of the banking sector and the financial sector?

A.

As we are a supervisory agency, it is most important to have a view on what kind of supervisory administration is going to achieve financial administration that enjoys public confidence, and how the financial administration for the people ought to be. In that context, we intend to sort out our ways of thinking and further enhance confidence in the Japanese financial system with the understanding of parties to the relevant sectors.

Q.

We have a question about the Institution for Industrial Revival. Who will be making the decision to go to the Resolution and Collection Corporation (RCC) or the Institution for Industrial Revival? Is the independent entity called the Industrial Revitalization Committee going to make that decision?

A.

''Special Support'' is basically not about nationalization but about achieving the revitalization of financial institutions by making the most of the vitality of the private sector. Therefore, the management of a bank receiving Special Support will be required to consider how to deal with things in the Revival Account. It is not a matter to be determined at this stage.

Q.

The Program states ''The management representing financial institutions which receive ''Special Support'' is severely urged to clarify their responsibilities.'' To what degree will they be required to clarify their responsibilities?

A.

This is up to the management, as a matter of course. Nonetheless, it is a framework with a solid safety net that prevents them from plummeting further by using the special loans from the Bank of Japan (BOJ), as public aid. The management will naturally decide on why it ended up in such a situation. In that regard, we want managerial responsibilities to be clearly defined. We therefore provided for it in such a manner.

Q.

As for the way in which Special Support Financial Institutions are recognized, what exactly is the meaning of ''distress, capital shortage or similar situations''?

A.

We may think of a case in which the management is in distress, in which we must deal with the crisis to protect depositors. Additionally, we may include cases in which an application for receiving public funds is filed based on the financial institution's decision. Considering that Mr. Takenaka is eager to develop operational guidelines for converting preferred stocks into common stocks, we may also presume another case, in which the ratio of the common stocks exceeds a certain level.

Q.

The Program refers to a work schedule due to be publicized in November. What does it cover?

A.

As there are matters that require further analysis, we will analyze them further. We will draw up a work schedule that defines when and in what form it will be fulfilled, including the things that I just talked about.

Q.

Is it likely to indicate the timing of the review of deferred tax assets, which was not covered?

A.

As this is a matter to be examined first, Mr. Takenaka will probably consider the method of examination in the near future and then start working on it in concrete terms. It will depend on Mr. Takenaka's decision.

Q.

Will it be examined by the Project Team?

A.

Probably not at the Project Team, although it will depend on Mr. Takenaka's decision.

Q.

What is going to happen to the Project Team in the future?

A.

Mr. Takenaka is inclined to deepen the discussions about industrial revitalization and enhancing the functions of RCC at the Project Team. He also said in a recent meeting of the Project Team that he would like to talk about relationship-oriented banking. I suppose these matters will be on the agenda.

Q.

As for the Special Support framework, the Program states that the Government will apply the following framework of Special Support, No.1 ,2 and 3. No.2 corresponds to re-capitalization under the Deposit Insurance Law. Have any changes been made to the existing requirements for re-capitalization? Are the terms and conditions different in cases where public funds are to be injected according to No.2, within the Special Support framework?

A.

As I have mentioned earlier, there are three cases; the first is the existing scenario, the second is an application, and the last is the conversion of preferred stocks into common stocks to the extent that the ratio of common stocks exceeds a certain level.

Q.

Does it mean that public funds will be injected based on the existing Deposit Insurance Law?

A.

First and foremost, this is about ensuring liquidity in alliance with BOJ. What happens subsequently will depend on each case, in concrete terms.

Q.

In the event of injecting public funds under the Deposit Insurance Law, procedures will be required to facilitate the convocation of Council for Financial Crisis. Will the existing procedures be applied?

A.

It will be processed as required by law.

Q.

The requirements include Diet interpellations. Does this remain unchanged?

A.

That's right.

Q.

Will a bill for new legislation be submitted to the next Diet session if all goes smoothly?

A.

We do not assume a new legislation, as we will engage in discussions without rejecting various possibilities for this matter.

Q.

Please explain what the Task Force on Financial Issues will do. Is it going to be dedicated to monitoring, or similar to the Project Team, rather than being established inside FSA?

A.

It will engage in monitoring to terminate the non-performing loan (NPL) problem. To achieve this, experts will be asked to get together and give advice to Mr. Takenaka. We intend to have discussions about this and clarify how it ought to be as soon as possible.

Q.

The Program states that corporate revival will be carried out utilizing the RCC as well. On one hand, you have the Institution for Industrial Revival, while the Development Bank of Japan is involved in reviving businesses through investment in funds, etc. The distinction between their roles appears to be extremely unclear. How are their roles defined?

A.

As each of them has their own characteristics, their roles might overlap in some aspects in the area of revitalization. However, it is extremely important to make them work together in an organic manner. In this intensive period, there is a role to be played by government-affiliated financial institutions and they are positioned as such. The further enhancement of RCC's functions will be useful for revitalization in some aspects. Also, we intend to fulfill industrial revitalization --which is a massive theme-- by creating a new organization, not only mobilizing the strength of the Government as a whole but also utilizing various strengths of those in the private sector.

Q.

The Program fully gives consideration to small- and medium-sized enterprises (SMEs). Ultimately, banks are currently required to improve their profit margins, including the plan for banks subsequent to the injection of public funds. On the other hand, credit withdrawal and credit crunch appear to be inevitable in some aspects. How do you define these matters?

A.

If the sensibility of the management at the frontline of SMEs could strictly be assessed, there is a considerable chance for SMEs to revive. Basically, my view is that banks' profits could be further improved through their revitalization.

Q.

Does it mean that they can work together?

A.

Regardless of whether they can work together or not, I think loans to SMEs are extremely important for banks. It is an area where massive profits could be reaped.