Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, July 23, 2010, from 12:32 p.m. to 12:57 p.m.)

[Minister's Comments]

Today, a wide range of comments were presented on the subject of the budget ceiling issue at the informal ministerial gathering, but the Chief Cabinet Secretary has asked us, as was also the case last time, not to make public any comments as individual ministers.  It was just said that a decision will be made by the next informal ministerial gathering.

Generally speaking, though, as you know, in the Ministry of Justice, the National Police Agency, as well as our Financial Services Agency, heavy-weighted share, approximately 70 percent of 22 billion yen in its budget, which makes up slightly less than 4 percent of the Cabinet Office's budget of 560 billion yen, goes to payroll. The financial world, be it international or domestic, represents an area that very much needs specialists and, in the context of the Basel Committee (on Banking Supervision), or the G8 and G20 for that matter, financial matters have now become very significant issues in the global economy since the Lehman crisis two years ago. Other ministries that also have a large payroll raised similar points in general, strongly requesting that proper care should be taken regarding each ministry's own budgetary makeup, like what I've just stated for the FSA.

Let me also take this opportunity to apologize for my late arrival today because, as you know, we had two committee meetings in addition to the informal ministerial gathering. This is all what I have to say now.

[Questions & Answers]

Q.

The financial regulatory reform bill was legislated in the U.S., the epicenter of the recent global financial crisis. Please tell us your opinion on this.

A.

I am aware from newspaper reports that financial regulatory reform bill was signed into law by President Obama, the first in the U.S. financial regulations history in 80 years. As the intention behind the new law is for the U.S. to comprehensively review its financial regulations and supervision and rectify issues in the financial sector in order to prevent another financial crisis from occurring, I am hoping that its enactment will lead to stabilizing financial markets in the U.S. as well as worldwide.

Q.

On the European front as well, I heard that before dawn on the 24th, the results of a stress test covering 91 banks will be announced. Depending on what will be revealed, this may have an impact on global financial markets - can you please tell us your view on this matter?

A.

I have heard that, as you know, the Committee of European Banking Supervisors (CEBS) is poised to announce tonight the results of the stress test covering 91 banks, the most prominent of them being major European banks that together hold roughly 65 percent of the financial business in Europe. As far as I know, it will start at 1:00 a.m. on the 24th and I am earnestly hoping that this announcement of the stress test results will work to enhance the level of credibility in banks in Europe, adding more stability to markets.

Q.

With a meeting of the Group of Governors and Heads of Supervision scheduled to be held in Basel next week, please fill us in once again about the Japanese government's stance in the run-up to attending it.

A.

It is another very important meeting in response to the Lehman crisis, the central bank governors and heads of financial supervision are scheduled to meet late this month, July, to summarize the progress of discussion regarding the reform package proposal that the Basel Committee announced last December. A proposal on how the final form of regulation should be shaped is slated to be submitted for the Seoul Summit to be held in November following deliberations in the coming meeting and other forums. Given all this, the FSA believes that new regulation will contribute to enhancing the capital adequacy and liquidity of Japanese banks in the medium to long run but, on the other hand, an economy is a living thing and it is therefore important that the reform should be carried out gradually and steadily in phases, rather than rushing to enforce all regulatory reform items, by, for example, setting an appropriate transition period in consideration of any potential impact on the recovery of the Japanese economy. It is such a perspective that I expect Japan's central bank governor and head of banking supervision, which is the FSA Commissioner, to have in attending the meeting.

Q.

My name is Iwakami and I am a freelance journalist. I appreciate the chance to talk to you.

I asked about this in your previous press conference, but please allow me bring up again the subject of the recent arrest of former Incubator Bank of Japan Chairman Kimura. I would like to raise a question about the responsibility of then-Minister Takenaka, who gave Mr. Kimura senior position hear in FSA. It appears to me that this is not a matter of formal responsibility for appointing him but rather a reflection of the skewed, if it was skewed, financial administration that was in place under the then Koizumi administration and then-Minister Takenaka. As you said something like "next time" when I asked about this matter before, I have decided to ask again.

A.

I believe that in the work of examining or implementing the financial administration, it is generally important to turn to what a wide range of external experts have to say. From such a standpoint, I did say that he was "one of them," so to speak, as he was among the group of economic and financial experts back in - if my memory serves me right - fiscal year 2002, when the non-performing loan problem was posing a serious challenge, and I am aware that Mr. Kimura was appointed to serve as an advisor to the FSA.

In any case, I find it extremely regrettable that someone with such a track record later got arrested for allegedly hindering an inspection. All in all, considering that public trust is indeed the foundation of financial administration, what has happened is really extremely regrettable in that sense, too.

In my view, the FSA needs to take a rigorous approach against the Incubator Bank of Japan in connection with the progress and implementation of its business improvement plan. Moving on to the subject of his two years in office as an appointment of then-Minister for Financial Services Takenaka, I am sure that all of you know that the financial administration was then faced with many pressing issues, ranging from, for example, financial system stabilization and enhancement and promotion of a shift from saving to investment - as a matter of fact, it was a period that was filled with very challenging financial issues, including expediting a solution to the non-performing loan problem and reforming the securities market structure. At any rate, seeing as the recent turn of events, where someone with such experience got arrested for allegedly hindering an inspection later, is extremely regrettable and I am also aware that there is a high level of public attention to this matter, I am determined to exercise strict oversight, bearing firmly in mind the points I've just made.

I also take it as my obligation to work hard to authoritatively regain public trust, listening to comments from various others.

Q.

I am Iwakami, a freelance journalist.

Former Minister for Financial Services Kamei quite repeatedly raised criticism against Mr. Koizumi and Mr. Takenaka and against their measures on financial issues back then. Now in the position of Minister, how do you rate the way then-Minister Takenaka took his measures on financial issues back in those times? I would like to hear how you rate it back then, including the fact that he gave Mr. Kimura a position of trust.

A.

I find your question to be a very pertinent one. Let me cite the three-party agreement announced on September 9 (2009), which you surely remember. Another example is the six items in the common policy platform for the then-approaching Lower House election, announced by the Democratic Party of Japan, the Social Democratic Party and the People's New Party (PNP) about one week before the change of government. It is a document that lodged a very outright criticism against the fact that excessive competition policies implemented by Mr. Koizumi, or Mr. Takenaka, led to a considerable loss of Japan's social stability, including the so-called safety nets. As Policy Research Committee Chair (of the PNP), I wrote that point at the very beginning of the six items in the common policy platform, which was put together in the run-up to the election, and I also articulated in writing that even after the change of government, Mr. Koizumi's excessive competition policies had substantially damaged various social safety nets or regional economies. Further still, the three-party agreement spelled out that the per-household income level dropped by one million yen in the course of ten years during which the Liberal Democratic Party (LDP) was in power. While I may not use expressions as sharp as those of (PNP) Chief Kamei, I am still intending to take a firm stance, keeping in mind the original intention behind the change of government, in addition to the points I've just made.

Q.

I am Sonoda from Hoken Mainichi Shinbun.

When is the FSA's financial tax system research commission scheduled to start operating? Is there any plan to include in their discussion the issue of double taxation on life insurance payments, among other issues that are not in the original discussion item list?

A.

Having served as vice-chairman of the LDP's Tax System Research Commission for about eight years when I was an LDP member, I know that finance and taxation is a very significant issue. When deliberating the circulation of securities and, at the same time, taxation on those financial instruments, we are planning to reflect on the past development involving, as you know, a wide variety of tax revisions, including the now-abolished securities transaction tax, that were formulated in the light of trends in a higher dimension, such as the shifts from saving to investment and from indirect finance to direct finance, and will also examine in a comprehensive fashion any potential impacts of tax revisions, which we will work on to reach a final conclusion in time for the tax system request deadline at the end of August. The FSA also intends to consider the current economic situation and the historical development in Japan, where indirect finance has traditionally been more prevalent than in the U.S., where direct finance is very dominant, while also attaching importance to smooth financial functions and simple and fair taxation, with the intention of officially submitting our request to the (Government) Tax Commission by the end of August following our comprehensive deliberations.

I have been informed that the work of deliberations is just about to start in the Ministry.

Q.

My name is Sasaki and I am a freelance journalist.

I would like to ask a specific question in connection with the question that Mr. Iwakami has just asked. I also asked a related question last time, but please allow me to point to an incident that I believe took place when the Incubator Bank of Japan was in the process of acquiring its banking license, where Mr. Kimura got paid 100 million yen for entering into a licensing consultation service agreement while he was an incumbent advisor to the FSA. This constitutes a case of someone in the position of a part-time civil servant as an advisor who went ahead to work as a licensing administration consultant at the same time and got paid for it - doesn't that carry any issues?

A.

While it appears that many questions have been asked in the Diet on this subject, the FSA's organization regulation provides that an advisor to the FSA will "participate in designing important measures from among the administrative functions that the FSA is responsible for" and, as far as I understand, will not be engaged in the administration of any individual cases. Another point is that an advisor to the FSA is actually not subject to the application of a clause in the National Public Service Act that provides prohibition against holding concurrent offices, which brings me to understand that an advisor to the FSA, being a part-time national public servant, is free to engage in other work as there is at least no legal restriction from the National Public Service Act. Therefore, the FSA sees from the perspective of the National Public Service Act that there was presumably no particular problem in his engagement in the work other than the one as a civil servant. Even if that is how law is written, however, "never invite suspicions needlessly." I would therefore like to have strict oversight exercised, taking such a viewpoint into consideration. In other words, in order to regain public trust that has been lost, I, as someone elected to the Diet for 25 years, expect that a scrupulous attitude should be assumed in comprehensive consideration of all those points.

Q.

Then it may be necessary, in my view, to have a little more developed rule applicable to a private person engaging in policy actions in the capacity of a part-time civil servant. How do you find such an idea?

A.

Having quoted the saying, "never invite suspicions needlessly," I find that idea to be quite natural as a course of action to gain higher trust and as a possible future issue. All in all, it's common sense that an advisor is a high position in the FSA as a matter of course. What I consider constitutes a basic philosophy of conservatism is not to "help the weak and crush the strong," but rather to "help the weak and have the strong assume responsibility," which is an idea that the PNP supports. I believe that those in a position to lead others should exercise strict oversight that the public can feel satisfied with, be it in the capacity of a publicly-elected Diet member or Minister for Financial Services, in comprehensive consideration of ethics, morals, commonsense or, in some countries, religions, before law.

Q.

The Tokyo Stock Exchange is reportedly considering eliminating lunch breaks and extending trade hours, but I believe that this is an idea that has been brought up on and off in the past and longer trade hours would not necessarily lead to more active trades. What is the FSA's current take on this?

A.

I had not known until you told me that it is an on-and-off subject, but I do know that what you've just described was recently reported in a newspaper. While I hear that exchanges in some countries do not have any lunch breaks, it is basically a matter of a private company, the Tokyo Stock Exchange, that is, and the FSA would therefore like to refrain from making comments that would effectively suggest this or that action.

That said, I do generally hope that a range of actions taken by the exchange will contribute to enhancing and expanding its market and augmenting the level of customer convenience, all the while ensuring investor protection.

Q.

I am Kataoka from Hoken Ginko Nippo.

Seeing that the FSA published on July 21 the Compilation of Problem Cases Raised in Financial Inspections, I would like to hear how you view financial inspections as they stand now.

A.

With various aims in mind, including further augmenting transparency and predictability of financial administration, the FSA Inspection Bureau publishes every July, starting in fiscal 2005, the latest Compilation of Problem Cases Raised in Financial Inspections.

As we have done every year, we selected cases from the inspection results reported from July of last year to June of this year and published them in the form of the latest Compilation of Problem Cases Raised in Financial Inspections for the 2009 program year, as you've just pointed out, which I expect each financial institution to refer to when formulating its future internal control system. With the successful enactment of the SME Financing Facilitation Act when former Minister Kamei was in office, it is now ensured, as you know, that in times of an economic downturn like the one we currently find ourselves in, financial institutions should adequately address requests for easing lending terms or changing housing loan terms, etc. In a sense, this has achieved a substantial change, if not quite a sea change, from the way financial administration was run in the past, and we need to keep that in mind. I know an SME owner in my hometown who employs about 100 people, about 50 of them being permanent employees and the rest working on a non-permanent basis, and who says that he is able to barely survive thanks to the establishment of the SME Financing Facilitation Act but also speaks out, "Mr. Jimi, we are now desperate for more work." He also goes on to say that "I personally feel that I could close down the business, but I am hanging on, struggling with all my might - because every one of my 100 workers has a family."

As I also mentioned last time, it is a law with specified duration designed to serve its role of accommodating financing needs over two calendar year ends and two fiscal year ends, but the gentleman that I've just told you about, among other people I've listened to, has expressed his strong wish to "have it extended." Under the current circumstances, it is indeed very important that money should go to SMEs, considering that 99.7 percent of all companies are SMEs, 28 million people work for SMEs and they make up a very important segment of the Japanese economy and that SMEs also actually excel greatly in flexibility and resilience.

Thank you for your attention.

(End)