Press Conference by Kaoru Yosano, Minister of Finance and Minister for Financial Services

(Excerpt)

September 15, 2009

[Question Items related to the FSA]

  1. Comments on developments during the term of office
  2. Lessons of the Lehman shock and the outlook for the future course of the global economy
  3. G-20 summit

[Questions and Answers]

Q.

It is exactly one year since Lehman Brothers failed, an event that has come to be known as the “Lehman shock.” What lessons do you think we can take from the Lehman shock? What do you think the global economy can learn from the financial crisis? And while the crisis is ongoing, what is your outlook for the future course of the global economy?

A.

For one thing, we must consider the issue of risk management in financial institutions. There are two types of risks: risks held directly by financial institutions themselves and risks that may arise from off-balance-sheet assets. Unless a certain degree of transparency is introduced with regard to the management of such risks, another incident like the Lehman shock could occur. As is often pointed out, the remuneration system of rewarding risk-taking with higher pay encourages unrestrained risk-taking, so this must be curbed under the financial regulatory framework. One year on from the outbreak of the crisis, some people in the financial industry may be saying that they should be free to do as they like as they have recovered, but I won't buy such an argument. According to one estimate, over the past year, governments in the United States and Europe may have used funds equivalent to 5% to 6% of GDP to bail out financial institutions and help them stay afloat. The financial industry must not simply continue “business as usual” in the hope that it will get limitless protection. Fortunately for the Japanese economy, Japanese banks have not been so exposed to derivatives. It is fortunate for the Japanese economy that Japanese banks engaged in derivatives transactions on a relatively modest scale and that their risks were significantly diversified. However, the lessons learned from the collapse of the economic bubble are tending to be forgotten now that 20 years have passed. This month or next, Keio University Press will publish five or six works on the history of Japan's economic bubbles. If we read them, we will be reminded that unless we pass on the lessons of a financial crisis like this and previous bubbles to future generations, our nature makes us prone to repeat the bubble cycle, which dates back to the 17th or 18th century. This time, Japan was lucky to have at least avoided this mistake.

Q.

It is one year since the Lehman shock, and a financial summit will be held in Pittsburg next week. What stance are you going to advise your successor to take in negotiating with other countries at this meeting?

A.

I believe that all various financial regulatory measures being discussed around the world are acceptable for Japan. However, with regard to the capital requirement, it will be problematic for Japan if a new requirement fails to take into consideration the circumstances of Japanese financial institutions. I am not too worried because this is to be determined through negotiations and the wording of the reform proposal made recently is restrained. In any case, it is very important that the capital adequacy ratio requirement is determined in a way that suits the circumstances of the Japanese financial institutions. As for other regulatory reform measures, such as enhanced information disclosure and limits on pay, Japan will probably be able to implement them relatively smoothly, so I do not see any significant problems ahead.

(End)

Site Map

top of page