Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, June 29, 2010, from 10:37 a.m. to 11:06 a.m.)

[Questions & Answers]

Q.

The Incubator Bank of Japan (Nihon Shinko Ginko), which has been subject to administrative action, submitted its business improvement plan to the Financial Services Agency (FSA) yesterday. What is your assessment of this plan? Having received the report on the plan, do you think the Bank can be rehabilitated properly?

A.

Pursuant to the business improvement order issued on May 27, the Incubator Bank of Japan reported and submitted its business improvement plan and announced the outline of the plan on June 28.

According to the outline of the business improvement plan, first, the Bank will review its organization and internal rules on the whole to radically reconstruct its governance structure-in other words, to enhance governance. Second, the Bank will establish an appropriate system for undergoing inspections by such means as formulating “inspection handling guidelines”. This, as you know, is in response to the Bank's evasion of inspections. Third, the Bank will thoroughly investigate whether or not there are other violations of laws and regulations and will rectify such violations, if any. Fourth, the Bank will incorporate into the plan such measures as enhancing credit screening for large accounts based on the complete segregation of the sales promotion division and the screening division. As you are well aware, the Bank has launched a “Special Investigative Committee” consisting of lawyers, certified public accountants, and other third parties, which will be entrusted separately with the task of identifying the causes of the violations of laws and regulations of late, and investigating and verifying whether or not similar violations exist and how large borrowers are managed.

The FSA believes it will be important for the Bank to steadily execute the business improvement plan effectively. From this perspective, we intend to thoroughly follow up on the implementation status and the effectiveness of the plan and supervise the Bank in a strict manner.

Q.

This is the first year of implementation for the system of mandatory disclosure of officers' remuneration on an individual basis. We are now in the season of the general meetings of shareholders, and more than a hundred officers have had their remuneration disclosed. What do you make of this?

A.

I would like to refrain from commenting on the remuneration of officers of companies on an individual basis. Speaking in general terms, however, listed companies have their shares purchased by the general public, so I believe they are subject to generally-accepted principles to a certain extent. In the case of financial institutions, there are banks that have been recapitalized with public funds. While officers' remuneration is basically at the discretion of the management of each company, I believe generally-accepted principles are applicable in the social context.

As disclosure is limited to officers who have received 100 million yen or more in remuneration, I am often asked what I think about them receiving such an amount. This threshold was set by using as reference, among others, the most frequently occurring amount of remuneration of Chief Executive Officers-or CEOs-of listed companies in the United States, which is around 100 million yen. Opinions on setting the amount at 100 million yen vary widely, but I think it is an appropriate level.

Q.

I have another question related to this matter. In addition to the disclosure of officers' remuneration on an individual basis, the latest revision of the legislation requires that the calculation method of officers' remuneration be disclosed as well. However, if you take a look at companies' reports on disclosures at present, some companies present the standards quite clearly, but many others just make a statement along the lines of “subject to determination depending on the circumstances”, making it difficult for investors to understand how the remuneration is justified. This seems to be inconsistent with what the policy had originally intended….

A.

It basically boils down to the management's discretion. As various debates are taking place at the general meetings of shareholders, the FSA would basically prefer not to comment on this matter.

Q.

You just stated that the threshold set at 100 million yen seems appropriate, but one's fate changes depending on the amount of remuneration: if it exceeds 100 million yen, it is disclosed; otherwise, it is not disclosed. I suspect there are some side effects that had not been originally intended by the policy. Please elaborate on this.

A.

Having served as a policymaker for 25 years, I believe that no policy is 100 percent correct. Any policy has its pros and cons, and I am aware of various criticisms. Nevertheless, as I stated earlier, the average amount of remuneration of directors of listed companies in Japan is roughly 25 million yen, while the average amount of remuneration of CEOs of listed companies in the United States is around 100 million yen, so I believe 100 million yen is a sensible threshold.

Q.

Almost two weeks have passed since the full enforcement of the revised Money Lending Act. Considering that confusion was expected to arise initially in various ways, how is the situation unfolding from your point of view?

A.

On the Friday before last, the amended Money Lending Act came into force, and on Tuesday, we announced the launch of the Follow-up Team led by Senior Vice Minister Kouhei Ohtsuka.

The Team, chaired by Mr. Ohtsuka, will first direct its efforts at thoroughly publicizing the system under the revised Money Lending Act. Although the FSA had worked strenuously to make the system widely known, we were told at this press conference that they were still inadequate. The Team will conduct fact-finding with respect to the implementation status and the impact of the amended Money Lending Act. As the revised Money Lending Act was passed unanimously by all the parties at the Diet with the aim of reducing multiple debtors, the Team will get a grasp of the actual situation as to whether the legislation is functioning as intended in reality, how it is being implemented and what kind of impact it has had, and then conduct a follow-up inspection of the system.

In government administration, where I have spent 25 years of my career as mentioned before, the basic assumption of bureaucracy had long been to be “infallible”-that is, not to make any mistakes. However, there has been a change in government. As far as the revised Money Lending Act is concerned, to tell you the truth, I saw on TV that fulltime homemakers with no particular income are having great difficulties because they need to have a letter of consent from their respective spouses who have an income in order to get a loan. At the institutional level, the Act was passed unanimously by all the parties, so it may be essential for them to comply with the Act, but government administration needs to get an accurate grasp of whether the legislation is really functioning as intended according to the actual circumstances. I have been informed that about 15 million people are front-line users of money lending services. In that sense, I took the political initiative in creating the Follow-up Team. Your understanding will be highly appreciated in this regard.

Q.

Although it may be premature to ask you this question at this stage given that the revised Money Lending Act came into force less than two weeks ago, is it your understanding that the Act has caused no particular confusion or impact at this stage?

A.

I have received no reports to that effect from Mr. Ohtsuka.

Q.

I am Namikawa from Toyo Keizai.

A series of general meetings of shareholders were held last week, including those at banks. The meetings involved the disclosure of information, including the amount of remuneration of officers. Facts that have come to light include, for example, the receipt of exorbitant paychecks by executives of a bank that is incapable of paying back public funds.

On top of this, it seems the role of outside directors is being called into question at the general meetings of shareholders of late. For example, one of the outside directors of a bank that cannot repay public funds has held office for the past decade despite such problem, so at the general meetings of shareholders, the bank's shareholders questioned what he had been doing all these years.

Meanwhile, the Incubator Bank of Japan (Nihon Shinko Ginko) you mentioned earlier has a long list of outside directors, despite it having caused such trouble. These people claim that they had no knowledge of the facts due to being outside directors. What are your thoughts on the issue of the remuneration at the Bank, especially the existence and role of outside directors of the Bank?

A.

With respect to your first question-excuse me for my repetitiveness-I would like to refrain from commenting on the remuneration of officers of individual financial institutions, as we are basically living in a free society. Generally speaking, however, each financial institution should deal with remuneration by exercising restraint, in consideration of its business performance and the environment in which it operates. In particular, I believe financial institutions that remain recapitalized with public funds need to exercise a certain degree of restraint of its own accord, as a matter of course.

Based on my understanding, the system of outside directors was introduced as they were obviously deemed important to improve governance, so I hope they properly fulfill their functions. However, we are basically talking about companies here, so it is a matter for the companies to properly decide by themselves.

(End)