Press Conference by the Commissioner

(Excerpt)

February 14 , 2005

Q.

Last week, there were many news reports on the merger negotiations between Sumitomo Mitsui Financial Group and Daiwa Securities Co., Ltd. We understand that no questions can be asked about this case, since the Financial Services Agency (FSA) has always taken a stance not to comment on individual cases. However, foreseeing further trend for financial conglomeration, the FSA included in the Program for Further Financial Reform announced at the end of last year policies to examine how the Government should respond to it. If the move toward merger as reported happens to be true, how will the FSA deal with the situation? What are your views, including your assessment of the situation?

A.

Let me answer the last question first. As you stated, I should refrain from commenting on this because it concerns individual financial institutions. In the present case, both parties have responded to the reports and announced that there are no facts or plans of entering full-fledged merger negotiations. I apologize for not being able to comment on this matter.

As for the first part of the question, financial institutions may choose a merger-based business model, or select a conglomeration-based business model, which is like being a department store. Or they may just offer everyday services conveniently, similar to services provided by convenience stores; they may build their product lineup based on everyday services by, for example, making use of an agency framework. Or, they may choose to offer extremely sophisticated services but not have a wide range of products, like a specialty store. It is all a matter of management decision.

As the Government, our view is that if the top management chooses a conglomerate-based business model, we must devise various systems to make such choice as easy as possible. If it wishes to offer services across different types of businesses by simpler means, such as through agencies, we will prepare a framework to make it as easy as possible. If it wishes to run a specialty store, we must review whether there are any regulations which hinder the development of sophisticated financial products.

As a matter of course, the risks to which they are exposed will vary with their choice of business model. For example, a specialty store will be exposed to risks attributable to monoculture. A convenience store will be exposed to risks due to subtle differences in location and other risks if there are hardly any qualitative differences in the service. Conglomerates will, of course, face difficulties in controlling the risks associated with more complex organizations and services. We will therefore require risk management according to each model.

We are not going to say that we are for or against conglomeration. We believe the most important thing for us is to prepare an environment which provides financial services that generate maximum user satisfaction, and to strictly monitor and supervise institutions with respect to risk management in view of protecting the users.

Q.

If the management decision is to go ahead with conglomeration, what are the potential merits to users?

A.

It depends, because the merits will vary with the nature of conglomeration. Simply put, the most likely improvement in convenience is that users will be able to enquire about various types of financial products simultaneously just by accessing one company. While this may partly be possible even without taking the form of a conglomerate, if companies dealing in various highly-specialized financial products are, for example, operating as subsidiaries side by side under a holding company, one big advantage is that users will be able to access highly sophisticated financial services by extremely convenient means.