Press Conference by Shizuka Kamei, Minister for Financial Services

(Excerpt)

(Thursday, October 1, from 4:21 p.m. to 5:09 p.m.)

[Opening Remarks by Minister Kamei]

Do I always have to report to you about the day's cabinet meeting? Is that so even if there is nothing particular to report to you? Today, we discussed little more than (the suspension of) the implementation of the supplementary budget, including at an informal meeting of cabinet members.

Let me use this occasion to talk about my meeting today with the chairman of the Japanese Bankers Association (ZENGINKYO). Regarding loans to small and medium-size enterprises (SMEs), the relationship between lenders and borrowers is essentially a matter that should be dealt with by themselves. However, as I have been telling you, the FSA (Financial Services Agency) unfortunately guided financial institutions in the wrong direction under the wrong financial policy of Mr. Koizumi (former Prime Minister) and Mr. Takenaka (former Minister for Financial Services). Although the FSA has made efforts since last year to restore the state of its inspection and supervision to what it should be by revising the direction of its guidance, the lender-borrower relationship is, unfortunately, not in an ideal state. Amid the difficult economic condition, especially for SMEs, if SMEs are to avoid failure and survive…. When the economic condition is good, sound SMEs can raise funds, but now they are having difficulty receiving business orders. They are not to blame for this situation, rather the entire economy is. I told him (the chairman) that the FSA intends to take appropriate measures to deal with the growing wave of failures and voluntary liquidations, and I sought his understanding on my proposed measures, including the moratorium scheme. As the chairman expressed his understanding, I asked him to give me his opinions and advice as to how we can draft a good bill based on the banking industry's knowledge of the practical affairs of the banking business as we prepare to enact the bill, whose formal name has not yet been decided. He expressed his willingness to do so, and as he is a quick decision maker, he proposed that consultations be started next week. For my part, I proposed next Wednesday as the starting date in light of our schedule. Several representatives from the Japanese Bankers Association, which is comprised of second-regional banks and larger banks, will hold consultations with our senior vice minister and parliamentary secretary. The chairman said, “As we will send several representatives to you, please listen to our explanations of the current situation and our opinions,” and we agreed on next Wednesday as the starting date. I instructed the senior vice minister to deal with this matter appropriately.

I also instructed the senior vice minister to seek opinions and advice from the representatives of credit cooperative (SHINYO KUMIAI) and shinkin banks (SHINYO KINKO). I understand he quickly contacted them to arrange consultations.

In addition, I met with the Minister of Economy, Trade and Industry earlier today and asked him to select a representative for SMEs so as to give opinions and advice to our senior vice minister and parliamentary secretary. The parliamentary secretary for economy, trade and industry is also studying this matter as a member of our working group, and the minister accepted my request and pledged to make the selection immediately. I expect consultations with the representative for SMEs will also start next Wednesday or later. Those are the arrangements that we have made, although our senior vice minister's workload is very heavy as he is also responsible for overseeing the working group.

Moreover, today, I telephoned a person who devoted his efforts to financing for SMEs until July this year in his capacity as president of Senpoku Credit Cooperative (SENPOKU SHINYO KUMIAI), which is based in Miyagi Prefecture, and asked to have consultations with him. He will visit the FSA from around 1 p.m. Tuesday, and in addition to the senior vice minister, the parliamentary secretary and I, the FSA Commissioner and other senior FSA officials will listen to what he has to say about his experiences for about one hour. This will be an open meeting, so I would welcome you if you wish to listen to what he has to say.

[Questions and Answers]

Q.

You said that hearings with the Japanese Bankers Association and other organizations will start Wednesday (October 7) or later. I understand that the working group is scheduled to conclude its second round of debate on October 9, so this is a very tight schedule. Am I correct in understanding that you will not postpone the working group's conclusion of the debate?

A.

As this is a matter to be deliberated in the extraordinary Diet session, which may be convened in November, we notified the Cabinet Secretariat of our plan to submit a Bill to Deal with Curbs on New Loans and Forcible Collection of Outstanding Loans (tentative name).

As the FSA staff came up with the bill's name, we made the notification with the tentative name. We will collect opinions from various people in preparation for the submission of the bill — it may take time as we need to make schedule adjustments with people whom we consult — and the bill is not drafted by the working group. The bill is not drafted by it. Also, the bill, by its nature, is not something to be decided only by the FSA or any other government organization. That working group is not the decision-making body. It is not the decision-making body. Basically, we will debate this matter and have its outcome reflected in the bill. The bill, by its nature should be drafted in this way. It is not something to be decided only by the FSA. Therefore, we should have some degree of flexibility; essentially, I have a flexible mind. I have a flexible mind with regard to anything. We have to make schedule adjustments with people whom we consult and there are limits to the workload that can be taken by the senior vice minister and the parliamentary secretary, so I think that we should spend time on seeking a variety of opinions so as to draft an excellent bill, rather than hurry up.

Today, the chairman of the Japanese Bankers Association and I agreed on a variety of matters, including the assessment of the current economic situation. Regarding the bill that the three parties, then opposing parties, previously submitted as a measure to deal with curbs on new loans, the chairman told me, “That has apparently prompted the FSA to make a policy change.” I am not sure whether that led to a policy change by the FSA, and there was probably no change because the FSA paid no heed to us at that time. Although the FSA may not have made a policy change because of the bill, the chairman of the Japanese Bankers Association said, “We have the impression that the FSA's stance on inspections significantly changed at that time.” The chairman has been interested in and has appreciated our efforts since we were in opposition. That's what he said. He also said that to other people, although I thought that he might be overestimating the impact of that bill.

Q.

I would like to make sure about one thing. I presume that you are naturally considering support for lenders under the bill to introduce the moratorium. Am I correct in understanding that the support will cover regional financial institutions, including regional banks, credit cooperatives and shinkin banks?

A.

We are considering all banks as possible targets. Although SMEs are borrowing loans mainly from regional banks, we are considering all banks as possible targets.

Seeing from the fact that you news reporters have been writing news stories speculating about a possible disagreement between the Prime Minister and me, I guess you are facing a shortage of news items. You have quoted the Prime Minister as saying the moratorium will not be applied to interest payment and quoted me as saying it will be. I have never said it will be applied. What I said is that I would consider applying it to interest payment. That is what I was saying from the beginning. I have never said that it will be applied to interest payment. The Prime Minister has not appointed me as the Minister for Financial Services while imposing a rigid constraint on me in this respect. That is quite obvious. The Prime Minister and I have been discussing this matter all along. Although you may not know it, for one year, we have held weekly meetings to discuss a variety of matters with the participation of the secretary-general, Mr. Kan (who is now vice Prime Minister) and Mr. Naoshima (who is now Minister of Economy, Trade and Industry) from the DPJ and the secretary general, the chairman of the policy research council and me from our party. We have held such meetings since last year. I have formed the three-party coalition based on communication with each other and a consensus was forged on a very wide range of issues through those meetings.

Q.

Do you mean that you are considering megabanks as possible targets of the bill.

A.

If I replied in the affirmative, you would report that “megabanks are also targets” in your news stories tomorrow morning. We are still studying this matter. I have not yet grasped the full picture of the current state of loans, nor am I aware of the extent of megabanks' involvement in financing for SMEs. Therefore, we should not decide from the beginning whether or not they should be covered by the bill. As we are studying this matter, I would like to keep an open mind on anything.

Q.

When you met with Mr. Nagayasu of the Japanese Bankers Association, did he express sufficient repentance? You have repeatedly said that banks have not sufficiently repented.

A.

I am not so rude as to tell him to repent. I am sure he is aware of how the banking industry has behaved so far, so I will not make such a rude demand.

Q.

Did you have the impression that he had repented?

A.

You are asking a question like this so that you can use my reply as material for your news stories. I will not answer that kind of question. I will not fall prey to the media. Today, I also told Senior Vice Minister Otsuka to take care not to fall prey to the media.

Q.

This has nothing to do with falling prey to the media. As a minister, you have said over and over again that banks have not sufficiently repented, so I am asking whether you saw signs of repentance today…

A.

Wait a minute. I made clear to you that I disapproved of the banking industry's past behavior. It is quite natural. Mr. Nagayasu also understands that I am taking this action in order to support SMEs and salaried workers based on the recognition that the financial sector, which is important for the economy, must fully function amid the difficult situation for financial institutions around the world. He understands that well, and he is not raising any objections, although newspaper articles have suggested otherwise.

Q.

Let me change the subject. The other day, Nomura Securities announced — I am asking this question because financial stock prices are dropping — its second large-scale capital increase plan this year. What is your view on this capital increase plan, whose maximum possible dilution rate comes to 30%? Do you think it is necessary for banks also to increase their capital in the future?

A.

I believe each financial institution should make its own effort to strengthen its foundation, and it is natural for them to do so. As there has never been much progress in that effort, the government implemented support measures regarding financial institutions that cannot do that on their own, such as injecting capital into seven banks, including Hokuyo Bank, as you know. Nevertheless, essentially, financial institutions should make their own effort to strengthen their foundation. However, from the stock price fall that came in response to Nomura Securities' capital increase plan, which means the market has lost its fund supply capacity to absorb such fund demand, I have the impression the entire Japanese economy is now very weak. That is the impression the stock price drop triggered by the capital increase plan gives me.

This is not a matter that concerns only the securities industry. I have been talking about measures to invigorate the Japanese economy. Unless we boldly implement such measures, unless we implement our manifesto, including measures to expand domestic demand, it is doubtful whether the Japanese economy can be sustained by private-sector demand alone late this year through next year. I think that it is necessary for the government to start making efforts now to directly create domestic demand. As I am always telling Mr. Kan, the National Strategy Bureau must consider how the government should stimulate domestic demand from that perspective with an eye on the compilation of the budget for the next fiscal year, although it may be difficult to compile a supplementary budget immediately. Although the suspension of the implementation of the supplementary budget that was adopted by the previous government has been actively debated, I have been arguing all along that the government should take action related to domestic demand in a responsible manner. Over and over again, I have urged Mr. Kan to do that while consulting with the Minister of Finance. As we also have good ideas, I have urged him to take our advice. That is very important. Certainly, reducing waste is absolutely essential. However, even though we will reduce waste, neither the country nor the people's lives can be sustained unless we do the “building” part of the scrap-and build approach. That perspective is important for the Hatoyama government, too. I am not just calling for an increase in public works. Some public works are necessary, while we must avoid unnecessary ones like those implemented by the LDP (Liberal Democratic Party)-New Komeito government.

I really expect that the period around the turn of the year will be a critical time. I doubt that economic and employment-related problems can be resolved by the private sector alone. While establishing safety nets with government expenditures is important, this will not immediately stimulate domestic demand, although demand in some sectors may grow. I am always saying that we must consider how to deal with those problems. We need to implement financial measures from that perspective so as to enable blood (funds) to circulate throughout the body (economy). If the Ministry of Finance may be compared to the digestive organs of the economy, the FSA is the heart, and we need to ensure that the heart functions properly. Even if the FSA tries to play its role as the heart by circulating blood throughout the body, there will not be sufficient blood unless the Ministry of Finance properly acts as the digestive organ by absorbing nutrients. Therefore, in some cases, I may express strong demands regarding fiscal management from my standpoint. I believe I should do so. I am speaking now from that perspective.

Q.

I would like to ask you again here about what support measures are under consideration with regard to lenders.

A.

If the enforcement of this law leads to a problem with the fiscal condition or other matters of lenders, especially at small and medium-size regional financial institutions — although I do not expect it will directly lead to such a problem — the government will take such measures as injecting capital, as it did for seven banks including Hokuyo Bank, as you know, although the capital injection was not made as a result of this kind of measure. If a weak bank is struggling, the government helps to increase its capital as a preemptive measure. The government will do exactly the same with regard to small and medium-size financial institutions like shinkin banks and credit cooperatives. We will never do such a thing as withholding support for small financial institutions while bailing out major banks. We will never do such a thing.

Q.

As for the details of the bill, for example, interest subsidies…

A.

I cannot make comments based on the assumption that small and medium-size financial institutions will face problems. However, should such a situation arise, we will take all necessary measures. We will draft this bill while taking into consideration such things. Please trust us.

(End)