Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, June 18, 2010, from 11:03 a.m. to 11:39 a.m.)

[Opening Remarks by Minister Jimi]

Good morning.

At today's cabinet meeting, I commented on the “Report on the Measures taken to deal with Failed Financial Institutions, etc.” As you are well aware, if there were any failed financial institutions from October 1, 2009 to March 31, 2010, an official report should be approved at a Cabinet meeting and then submitted to the Diet under Article 5 of the Law concerning Emergency Measures for the Reconstruction of the Financial Functions (Kinyu Saisei Hou). Having said that, no orders to put operations or assets under the control of financial receivers were issued during the period. Put simply, no financial institutions failed during the six-month period.

I have nothing further to add. Do you have any questions?

At the cabinet meeting, I stated that the Financial Services Agency (FSA) will continue to take all possible measures to ensure greater stability in Japan's financial system.

I have nothing further to add. Do you have any questions?

[Questions & Answers]

Q.

The revised Money Lending Act came into force today. This morning, FSA staff led by the Senior Vice Minister distributed on the street free packets of pocket tissues containing a PR insert. Still, people's awareness is somewhat poor, say, when it comes to the total amount of credit that can be provided to a borrower by all money lenders on an aggregate basis being restricted to no more than one-third of the borrower's annual income. There has been some criticism of the government for being inadequate and slow in dealing with this matter. What are your thoughts on this?

Also, please tell us whether there is any room left to consider such matters as taking additional measures and reviewing the enforcement of the Act if the borrowers situation overall deteriorates.

A.

The amended Money Lending Act was enforced in full today-it was the fourth stage of its enforcement. As for your first question, it seems the comments of criticism are about inadequate PR activities in that regard, but on the other hand, if you take a quick look at the results of a survey conducted among individuals who used money lending services in the past three years, 80% of the respondents were aware of it. Among individuals who have not used money lending services at all, only 45% were aware of it, so my understanding is that individuals with money-borrowing experience are widely aware of it. That said, this will have a direct impact on people's lives. As for the content of the amended Money Lending Act you just asked about, we still need to bear in mind that “poor awareness” is frequently pointed out. Based on the “10 Measures to be taken for the Borrowers Contrived from Their Perspective”, we need to do more, such as publishing newspaper advertisements, putting up posters and distributing leaflets and packets of pocket tissues with PR inserts…. Senior Vice Minister Kouhei Ohtsuka and other FSA staff members distributed free packets of pocket tissues at Shimbashi Station today, and it is through such activities that we will seek to raise awareness. We also intend to make use of public service announcements and execute various initiatives on FSA's website and in internet bulletins. All of you here are, in fact, members of the media. I remember there was a well-written newspaper article about this law two days ago, so please share your wisdom with us if you think there is a better way or have any other suggestions.

As for the second question…

Q.

There are quite a few borrowers who are concerned about their cash positions, so many people are expressing their hope for a review of the enforcement of the Act or additional measures of some kind….

A.

As you are aware, it will no longer be possible for full-time housewives or other individuals with no income to get new loans, as a general rule. However, as you well know, we have also established exceptions to the rule, in that such individuals will have no problem in getting a loan as long as their spouse has an income and consents to such a loan. Alternatively, they will be able get an emergency loan that is deemed necessary based on common sense, if it does not exceed 100,000 yen and is due for repayment within three months. Furthermore, persons experiencing hardship due to debt can receive counseling offered in a proactive manner. We will make use of advisory counters, including at consumer affairs centers in which former Minister of Consumer Affairs Mizuho Fukushima had been putting a lot of effort, not to mention the advisory counters we have established for multiple debtors at local financial bureaus and local finance offices, which are government bodies in charge of this matter. Advisory counters for multiple debtors have also been established in more than 90 percent of municipalities. It is also worth noting that the consumer affairs centers that I just mentioned, which are under the jurisdiction of the Consumer Affairs Agency, have been substantially enhanced by amendments made to the legislation. Many of these counters are shared with local public authorities. With respect to such problems as multiple debts and excessive lending, the objective of the measures is to create a consumer finance market in which borrowers can use services with peace of mind. The revised Money Lending Act seeks to prevent individuals from falling into multiple debts by properly regulating the lenders. The Act is extremely significant in that the bill was passed unanimously by all parties, as you know, since multiple debts had become a massive social problem. At the same time, to prevent a rapid credit crunch and other side effects, we put the Act into force in a phased manner-in four stages-and today, on June 18, the Act came into force in its entirety.

Upon the full enforcement of the revised Money Lending Act, we announced “10 Measures to be taken for the Borrowers Contrived from Their Perspective”. We have issued the necessary Cabinet Office Ordinances and are going to do everything we can to facilitate the implementation of these measures.

As for the last question, the FSA will continue to carefully monitor how the situation unfolds after the full enforcement of the revised Money Lending Act, and will promptly consider taking appropriate measures as necessary.

Q.

There have been news reports about the “abolition” of the Financial Services Authority of the United Kingdom and the Bank of England taking over its financial supervisory functions.

Given that Japan's FSA was established partly based on the UK Financial Services Authority's model, please tell us whether there is a possibility of Japan drawing upon UK's approach, that is, the central bank taking on regulatory functions.

A.

I am aware that UK's Chancellor of the Exchequer George Osborne announced his basic plan to reform the financial supervisory system such as by abolishing the UKFSA. In the case of the UK, the Bank of England will be executing financial supervisory functions in an integral manner. As you are well aware, financial regulators across the world have been experiencing extreme difficulties in the aftermath of the Lehman Brothers shockwave. I believe that under these circumstances, the UK has made such a decision as a sovereign nation, considering the institutional history specific to the UK, as this background varies from country to country.

Japan's FSA needs to continue carefully monitoring developments in the UK in the future-after all, we are talking about “the City,” a leading market among financial markets around the world.

Q.

There have been discussions about a plan by the Basel Committee on Banking Supervision to introduce a mechanism to control the capital requirement's pro-cyclicality by making banks set aside more capital as reserves during booms and use them during recessions. Will Japan also be conducting studies along these lines?

A.

I am sure you are well informed that various discussions are taking place in the Basel Committee. In any case, banks' capital adequacy requirements should take into account the actual circumstances of each country. Especially at times like this when economic conditions are extremely harsh, due consideration should be given to the impact on the real economy.

As for the Committee's schedule for the future, I am aware that there is an international consensus to basically finish calibrating the standards of the new requirements by the end of December 2010 and start implementing the new requirements in 2012. During a boom, excessive lending is likely to lead to a bubble, and conversely, during a recession, credit withdrawal and a credit crunch are likely to occur. With this in mind, we need to properly take into account country-specific customs, traditions, history, and institutions, while being mindful of how markets would function in a sound manner. While the revision of Basel Accord has been agreed upon internationally, we intend to address this by considering such factors at the same time, given that the real economy is important.

Q.

In regard to money lending businesses, reimbursement of overpayments is a huge burden for money lenders. There is a lawsuit in progress at Tokyo District Court today, involving a claim against the government to compensate for the lending company's loss arising from overpayments. The plaintiff in this lawsuit is a money lender that has already gone out of business. The possibility of similar lawsuits being filed in the future is not remote. What are your thoughts on this?

A.

Generally speaking, I understand that the current business climate under the Money Lending Act is tough, due to such factors as the burden of the reimbursement of overpayments remaining at high levels, as you just pointed out. I have heard news reports about a lawsuit being filed against the government to claim damages, but given my position in the executive branch among the legislative, executive and judicial branches, I prefer not to make any comments on an ongoing dispute as the head of the executive branch.

Q.

I am Namikawa from Toyo Keizai.

Many general meetings of shareholders will be held next week. The government is a major shareholder of some banks. At Shinsei Bank, whose management stance had been subject to various criticisms made by former Minister Shizuka Kamei, one of the developments is that there will be changes in the management of Shinsei Bank. Are there any FSA's requests to be made to Shinsei Bank as a shareholder at the general meeting of shareholders?

A.

Firstly, the government is a shareholder of Shinsei Bank. However, as far as principles are concerned, I believe that in principle, the government should not-or should minimize-the exercise of public authority if possible in a capitalist, free economy, even if it is a shareholder. While I have yet to hear the final report on the specific case of Shinsei Bank, I intend to observe this principle as much as I can. At the same time, however, there are laws and regulations that give us some legitimate power. This is an extremely difficult area from a financial administrative and supervisory perspective. It is like holding an uncooked egg properly: if you hold the egg too strongly, you will crush it, but if you give too much freedom, it may end up in a situation like the subprime loans problem in the United States. It is extremely challenging and difficult from a financial administrative perspective. Nevertheless, we are committed to properly fulfilling our responsibility in this regard.

In the specific case of Shinsei Bank, a huge net loss was recorded for the second straight year in the financial results for the fiscal year ended March 31, 2010. In accordance with the Law Concerning Emergency Measures for Early Strengthening of Financial Functions (Souki Kenzenka Hou) and related guidelines, we are considering taking action including issuing a business improvement order that involves banning the payment of bonuses to officers next year, reviewing the salary structure of offices and employees and so forth. But then again, I basically believe the exercise of public authority should be avoided if possible…. When necessary, we will have to intervene, such as in the event of major market failure, but otherwise I would like to make judgments based on the principle I mentioned earlier.

Q.

In relation to the Money Lending Act, you stated that you would monitor its impact in consideration of various factors including the macro economy. According to the statistics of the Supreme Court, the number of personal bankruptcies has started to increase since March 2010. It increased by about 20 percent in March compared to the previous month, and did not decrease in April. Will attention also be focused on such personal bankruptcy trends in relation to the impact of the Money Lending Act?

A.

We intend to take all factors into consideration, while properly monitoring such trends as well.

Q.

I am Kataoka from Hoken Ginko Nippo.

With respect to insurance supervision and administration, the FSA has requested insurance companies to conduct field tests in the lead-up to the introduction of economic-value-based solvency assessment. Do you have any comments on this matter or any thoughts relating to insurance companies you would like to share with us?

A.

In the US, insurance companies were in turmoil at one point following the Lehman Brothers shockwave, as the US government had no alternative but to buy shares of AIG, which was the largest insurance company in the United States, if my memory serves me correctly. The economic situation was also tough in Japan at that time, with Toyota's production falling by 40 percent, even though it has since recovered to levels roughly equivalent to a 20 percent reduction. While various types of insurance are available, I believe the major objective of the insurance business is to properly ensure a sense of security and safety people's life and in industry. There was once a time when Japan's insurance company collapsed. It was about a decade ago. Bearing this in mind, insurance companies should continue operations that people and companies can safely and truly trust and properly rely on-after all, we are talking about insurance here. In particular, given the extremely harsh financial climate and global economic climate, we intend to properly monitor insurance businesses in such an environment.

Q.

I am Nakazawa from the Real Estate Economic Institute.

In regard to International Financial Reporting Standards (IFRS), some people are saying that the convergence trend might come to a halt. Please tell us your thoughts on how the convergence will be dealt with.

A.

I have not yet studied the topic of your question and the specifics in depth, but I believe that IFRS is basically stemmed from the idea that decision-making of investors and corporate managers should be based on common accounting standards amid the globalization of economies around the world. Based on such idea, investors will be able to make investment decisions according to a single standard transcending national boundaries and managers will be able to manage their respective companies according to a single standard to the greatest extent possible. Although there will be various accounting differences as a matter of course, my understanding is that there is such a huge trend. While I have yet to study the specifics, I believe we should work steadily in that direction.

(End)

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