Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

June 22, 2007

[Minister's Statement]

Good morning. I would like to report on the Cabinet meeting. Mr. Watanabe, Minister for Regulatory Reform, made remarks on the three-year plan for the promotion of regulatory reform. Mr. Amari, Minister of Economy, Trade and Industry made remarks on the FY 2007 government policy on contracts for small and medium enterprises and the policy on special subsidies to SMEs. The Minister for Gender Equality and Social Affairs made remarks on the implementation of Gender Equality Week. This year's slogan for the nationwide gender equality week is that ''a good tomorrow comes from a harmony between work and personal life.'' The Minister of Land, Infrastructure and Transport made remarks on the Mutsu Ogawara development. The Minister of Agriculture, Forestry and Fisheries made remarks on the results of his European tour. That concludes my remarks.

[Questions and Answers]

Q.

A media report today alleged that Dai-Ichi Mutual Life Insurance Co. will raise its equity stake in Resona Holdings Inc. so as to become the banking group's second largest shareholder after the government. Will you make any comments on equity alliances between large life insurance companies and banking groups, including the reported deal?

A.

I am aware of the media report on Dai-Ichi Mutual Life's acquisition of Resona shares. I would like to reiterate that I will refrain from making comments on the business decisions of the bank and insurance company in question. Regarding banks' repayment of public funds, we collect such funds under the Deposit Insurance Corporation's three principles -- maintenance of sound management, prevention of public burden and avoidance of adverse effects on markets. If Resona plans to transfer government-held shares to Dai-Ichi Mutual Life, we may make decisions in accordance with these principles. When a similar media report regarding Resona Holdings emerged on June 18, Resona issued a statement alleging that ''We are now considering a preferred share issue for repayment of public funds and a business alliance for the improvement of services. However, no specific decision has been made. Should any specific decision be made, we will make appropriate disclosure in a timely manner.'' Regarding banks' over-the-counter sales of insurance products, an annex to a relevant law enacted in 2005 calls for monitoring operations to determine ways to prevent the negative side-effects of strong bank influence over borrowers before banks are fully permitted to sell insurance products. Specifically, we are now monitoring banks' insurance product offers and the effectiveness of measures aimed at preventing negative effects. Based on the results of monitoring operations, we would like to make an appropriate decision on full permission. Life insurance firms' increased equity stakes in bank holding companies and the possibility of their operating under the umbrella of such holding companies may mean the development of universal banks. This may be related to banks' abuse of their dominant bargaining positions and the separation between banks and securities companies. In this respect, Japan may be viewed as not yet having reached the universal bank stage. In the United States, however, concerns about universal banks have been relaxed somewhat. I have heard that unless sales operations are strictly regulated by laws such as Japan's Financial Instruments and Exchange Act or unless the prevailing sense among the public is that ordinary investors should be protected, concerns may remain in regards to banks' sales of insurance products or securities to customers during lending talks. In this regard, we will closely watch the implementation and application of the Financial Instruments and Exchange Act in and beyond this autumn. I believe that in future, Japan as well as other countries may well go in the direction of universal banking. For the immediate future, however, we would like to focus on developing an environment conducive to banks' sales of financial products by promoting financial education, diffusion of financial knowledge and the diffusion of relevant information, and thorough protection of ordinary investors.

Q.

This week, the Urban Revitalization Headquarters officially announced a plan to create a financial center in Japan. Would you give us your personal views on the image or requirements of the center's specific location?

A.

It would seem that there may have been a misunderstanding on both our part and that of those who have seen the published plan. The term ''special zone'' has been emphasized, leading some people to believe that a municipality or prefecture would be designated by the national government as a special deregulation zone. However, this misunderstanding has been overcome. Given that a zone for the enhancement of financial functions is being considered at the Council on Economic and Fiscal Policy and the Urban Revitalization Center, people may come to believe that this financial center plan represents a national government policy rather than an exceptional measure that a municipality or prefecture would be asked to implement. Such a position of the financial center plan may have been recognized firmly. As for the image of the financial center as a zone, we would compare it to the New City or Canary Wharf. In other industrialized countries, financial functions have naturally concentrated at some locations irrespective of zoning. As indicated by the results of research conducted at the Urban Revitalization Headquarters and a report by a study group of the Financial System Council, the zone would not pinpoint a small area but extend over a wider area. An area within a 5-kilometer radius may cover New York's Wall Street, the City of London or a combination of Minato, Chuo and Chiyoda Wards in Japan. In talks on such zones in Japan or Tokyo, some people may, in particular, request that priority not be given to Chuo or Chiyoda Ward alone. Some may complain that Minato Ward would be left outside of the circumference coverage. These arguments represent misunderstandings. An area within a 5-kilometer radius may cover most of central Tokyo's office streets. From this perspective, the Urban Revitalization Headquarters may enter talks with the Tokyo Metropolitan Government, which possesses data on specific floor space and other matters.

Q.

The Basic Policies for Economic and Fiscal Management and Structural Reform 2007 calls for developing ''a program for enhancement of financial and capital market competitiveness'' within this year. Minister, what are your views regarding this process at the Financial Services Agency?

A.

An earlier interim study group report may have covered the details of the plan. In future, we will have to clarify vague points and deepen discussions thereon. Regarding international competitiveness, particular key points may include the specific image of a comprehensive exchange and a tax system. In any case, the interim report has covered almost all possible issues. In this sense, we may have to create a program that features the most efficient methods for implementing specific measures.

Q.

Regarding a specific image for a comprehensive exchange, the Ministry of Economy, Trade and Industry has set up a Study Group on the Enhancement of Competitiveness of Industrial Futures Markets in Japan. It is thus studying an exchange independently. Would you discuss the specific image or direction of the exchange based on this move?

A.

This point is also prone to misunderstanding. Futures markets are placed under the jurisdiction of METI or MAFF (the Ministry of Agriculture, Forestry and Fisheries). If the FSA meddles in the futures markets, this may be interpreted as a turf battle between government agencies. At present, however, financial products have already been sorted out for consideration by the FSA.In terms of market depth and trading volume, METI- and MAFF-controlled futures lag behind their respective foreign counterparts traded at comprehensive exchanges. In this sense, it is very good that METI is creating a study group for the purpose of considering competitiveness enhancement measures. We feel sympathetic towards METI. We are willing to cooperate with METI to the greatest degree possible should there be any need for cooperation. Through these efforts, a specific image may naturally emerge. If the FSA is unable to conduct such coordination, Ms. Ota's Council on Economic and Fiscal Policy or Mr. Shiozaki's Cabinet Office may be able to do so. This is our expectation.

Q.

Regarding universal banks, which you mentioned earlier, your remarks may be interpreted as indicating that Japan will have to consider creating a universal banking system in the future through measures such as the elimination of Article 33 of the Financial Instruments and Exchange Act, as the world is likely to shift towards the system naturally, based on a widening public support thereof. Am I correct in my understanding?

A.

Although I'm afraid I have yet to fully grasp the U.S. system, allow me to cite a U.S. case in which banks are involved in the sale insurance products and securities. Random phone calls by bank salespersons for the solicitation of insurance products or securities are reportedly interpreted as illegal. How do bank officials contact customers for such solicitation? In most cases, bank officials hold seminars and ask seminar participants if bank salespersons may be allowed to contact them by phone. Then, bank salespersons may make phone calls to those who agreed to such communication. This system has reportedly been implemented in a very precise manner. Under this system, bank salespersons can easily identify insurance or securities buyers and provide them with full explanations about material information. In this sense, what I said earlier means that bank regulators should carefully develop marketing and solicitation strategies and sales practices so as to ensure a firm environment in which bank salespersons do not exert pressure on customers. Therefore, what I said implies a hope that banks will adopt voluntary regulations, step up their compliance with laws and regulations and implement good sales practices under the full implementation of the Financial Instruments and Exchange Law in and beyond this autumn.

(End)

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