Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, September 17, 2010, from 10:37 a.m. to 11:25 a.m.)

[Opening Remarks by Minister Jimi]

Today, I handed in my notice to the Kan administration to resign from my posts of the Minister for Postal Reform as well as the Minister for Financial Services.

[Questions & Answers]

Q.

Upon your resignation, I would like to hear your summing-up of the approximately three months in the posts of the Minister for Financial Services and the Minister for Postal Reform after succeeding to (People's New Party or PNP) Chief Kamei.

A.

By way of a summing-up, I express my deep gratitude for the generous assistance that all of you gave me.  What left me with a particular impression was our inevitable choice to use - for the first time after the Second World War - the payoff program in relation to the Incubator Bank of Japan, as you know.  Despite the fact that it was the first such case after the Second World War, the depositors responded in a very calm fashion.  The payoff program is up and running as we speak, and I am grateful that we have been able to implement it in a tranquil fashion.  To tell the truth, it was personally a heart-rending experience as I recognize the tremendous inconvenience being caused to those with more than 10 million yen plus its interest in deposit.  However, the Deposit Insurance Corporation is currently dealing with the former management to properly look into its criminal and civil responsibilities and other matters.  While it is still an ongoing case, this payoff implementation left me with a particularly immense impression among what happened in my three months in office of the Minister for Financial Services.

I would also like to point out that since the Lehman Brothers crisis two years ago, the financial world in nations around the globe was plunged into a grave situation.  What is relevant here is the fact that the economy became divided by national borders in the wake of the Great Depression in 1929, which, according to present-day historians, is one of the remote causes of the Second World War.  Looking back on the truly sober human history like that, we have worked painstakingly to address the situation by holding G8 and G20 meetings and the meeting of the Central Bank Governors and Heads of Supervision, which just wrapped up as you know, and we also have the November Seoul Summit ahead of us.  As I often say, every country - be it the U.S., in Europe or an emerging economy in Asia - has different circumstances to deal with.  In that light, I find it quite significant in the context of world history that the Basel III accord has, for the most part, been reached successfully.  As I also mentioned last time, Japan, Germany and France were, in my view, ultimately able to play a leading role in that process.  The point is that, considering the truly painful experience that Japan had to endure to overcome the extremely challenging financial crisis 10 years ago, it is not necessarily good to make the capital adequacy rate higher and higher.  It is also true, though, that a higher ratio does provide peace of mind.  At the same time, however, going in that direction resulted in a credit crunch and oppressive debt collection practices in Japan in the past, leading to tight credit conditions and hence an extreme economic contraction.  Back in those days, we witnessed failures of financial institutions when there were a large number of companies that could have survived if only they had had a good supply of funds.  I felt the impact particularly keenly because I was in a ministerial post from 1997 to 1998 when the Hokkaido Takushoku Bank failed and Yamaichi Securities followed suit.  All those things considered, Basel III strikes me as a very significant feat in the context of world history.

It was also for that purpose that I made a short trip to the U.S. to meet with FRB Chairman Bernanke and Mr. Volcker in New York. The U.S. enacted the Dodd-Frank Act in July. In its background was the law that provided the basis for the generation of investment banks in the late 1990s, as the law repealed the banking business separation required under the Glass-Steagall Act, which had once, back in 1929, brought a drastic change of a sort. Amid the advancement of financial engineering as well as the economic and financial globalization, the law eventually contributed to the creation of very high-risk, high-return products. Ultimately, the risk got so high that it became no longer possible for companies to assume it on their own, leaving the U.S. with no choice but to even use taxpayers' money to cover it. As this was effectively the failure of financial capitalism characteristic of the U.S., which has remained the world's greatest economy and superpower ever since the Soviet Union collapsed, what ensued was a tremendous disturbance. In that context, the real economy was far outweighed by the financial world, or the world of money. This also affected the real economy - for instance, production in Toyota's factory in Fukuoka Prefecture, my home prefecture, dropped by 40 percent two years ago and occurrences like that explain why Japan has been in the situation that it is in now since then. It was against this background that the Dodd-Frank Act was implemented in the U.S. And, at that very time of historical significance, I met with FRB Chairman Bernanke and Mr. Volcker. Under the Volcker Rule, commercial banks may engage in a high-risk, high-return business on demand from customers, but not for their own accounts. In my view, this is the very core of the new Dodd-Frank Act. This is another case of a significant sea change. It was by luck that I had an opportunity to visit the U.S. in those days in the capacity of the Minister for Financial Services.

Aside from that turn of events unfolding in the U.S., China and Japan have come to collectively make up 17 percent of the world's GDP. China is a country that carried out macroeconomic policies relatively well in the wake of the Lehman shock and is currently achieving remarkable economic growth. Given that situation, I also consider it to have been very meaningful for me to have had the chance to meet with Premier Wen Jiabao and People's Bank of China Governor Zhou Xiaochuan on the occasion of the Japan-China High-Level Economic Dialogue and to visit, among other places, the Hong Kong Stock Exchange, the second largest market in Asia.

Another point that I would like to make is closer to home. In my opinion, it is critical for a politician to have a bird's eye and an insect's eye - both of these. Having been a politician for 25 years, I feel that it is imperative that politics in a democratic nation have an insect's eye to really look at things up close. I might get a disapproving look if I use the expression "an insect's eye" in this context but, right after the Amended Money Lending Business Act came into full force, we established the Amended Money Lending Business Act Follow-Up Team, which was in all likelihood an unprecedented move since the Meiji era. While 15 million people use services of the money lending industry, we enacted, with unanimous support, a law designed to prevent multiple debtors from being generated. As the level of per-household income dropped by one million yen amid deflation notably in the past ten years, we hear, and really hear, suffering voices and sighs of people in various forms of livelihood hardships attributable to those difficult times. Our top-down initiative to have the Amended Money Lending Business Act Follow-Up Team established in the face of a situation like that may sound like a minor thing, but it was nevertheless a decent and fair action brought about by the change of administration. The fact is that we live in a democratic nation, and our government is a publicly elected government. If a politician's eyes are always turned upwards like those of a flounder - well, I would not quite say that he would become oblivious to how the people are living, but he nevertheless could become increasingly insensitive to how each individual person is living or how each individual person is faring or suffering in life. Looking back at my 22 years with the Liberal Democratic Party, I myself admit with remorse that I also had such a tendency. After having to spend one year and 10 months away from public office, I had the honor of coming back to politics as a member of an opposition party, the PNP, and then we had the change of administration. It was a reflection of my conviction that I decided to create the Amended Money Lending Business Act Follow-Up Team right after the Money Lending Business Act was amended - the conviction, which I gained after having experienced all those things, that I am now able to hear properly how each one of the ordinary citizens is faring or to feel the pain that each one of them is going through. I humbly think that this is my mission, or my way as a politician.

Lastly, I had a comment-for-the-Minister box set up. When I attended the National Securities Industry Convention yesterday, I took to marketing this initiative. As everyone asked me about this comment-for-the-Minister box, I answered, "Yes, I set it up. As the securities industry is working hard now amid the challenging recession, I would really encourage you not to hesitate to bring comments that come out of your sweat." To my surprise, a good number of people asked me about this. My decision to have the comment-for-the-Minister box set up is none other than my attempt to have a bird's eye in the sense that I have described, while I am also hoping to thoroughly take in unfiltered voices of each one of those people who are breathing in the securities industry.

Q.

When President Kan was elected President of the Democratic Party of Japan (DPJ) the other day, the yen soared and triggered a foreign exchange intervention by the government and the Bank of Japan for the first time in six and a half years, which apparently shows Prime Minister Kan's strong determination to prevent a further appreciation of the yen.  Please give us your words on this issue, which you could do from your standpoint as the PNP deputy leader.

A.

As you know, the government and the Bank of Japan did indeed intervene in exchange markets on September 15 for the first time in six and a half years.  Seeing as foreign exchange intervention is essentially an area of responsibility of the Ministry of Finance, I would like to refrain from making any specific comments in the capacity of the Minister for Financial Services, but the Financial Services Agency (FSA) is intending to continue following exchange market movements and trying to grasp the real state of financial institutions from the perspective of, among other things, whether their financial intermediation functions are working in full effect.

Q.

My name is Kiyotaka Takahashi and I am a freelance journalist.

You said last time that the Project Team for Emergency Strategy for Financial Sector, which is believed to have approved the establishment of the Incubator Bank of Japan, left no meeting minutes. Does that mean that they were lost? Can you please elaborate a little more on the reason why there are no minutes left?

A.

I inquired with our administrative staff after I received a similar question last time, and it seems that there are really no minutes, which is very surprising, indeed.

Q.

Does that mean that no minutes were made in the first place?

A.

That is correct - really, no minutes right from the beginning.  I have received a report that back then, Mr. Takenaka said so at his press conference like this after the first meeting and everyone later strongly requested, all the while the nine or so meetings were held, that meeting minutes be made public but still, supposedly, no minutes were actually made.  I find it extremely odd, considering that the public administration represents the government run with taxpayers' money and working on behalf of the public and, after all, the government exists for the public good.  That being the case, the fact, as has been reported to me, is that there are no minutes left.  I find it very odd.

Q.

There has been press coverage indicating that the FSA is requesting Shinsei Bank to limit its staff salary payments to a certain level.  I would first like to know if this is true and would also like to hear what type of corporate management the FSA, as the regulator and a shareholder, is going to request from Shinsei Bank in the future.

A.

As you know, seeing that it is a matter concerning an individual financial institution, I would like to refrain from making any comments on any individual financial institution in the capacity of the authority.

Generally speaking, though, I understand that the salary scale of a bank is determined by the management in the light of its business model, staff makeup and other factors and is agreed on between labor and management.

In any event, my recognition is that for a bank that has benefited from a public funds injection, it is critical to formulate and steadily put into practice a robust management reconstruction plan that also covers the salary scale determination.

Q.

I am Kataoka from Hoken Ginko Nippo.

I would like to ask a question about financial ADR. Given that the insurance business groups representing the life insurance industry and the non-life insurance industry, etc. were appointed by the FSA on the 15th day (of this month) to serve as authorized agencies for financial ADR, please tell us about any requests or expectations that you have from those agencies, if any.

A.

I am not well versed in ADR, but I assume that it means out-of-court settlements.  Insurance involves a variety of factors, including, as a matter of fact, peace of mind and security for the public, as well as the viability as a business.  At the same time, its social security aspect also matters in the light of its public nature and public interests that rest with, in particular, sickness insurance, a segment that is now booming.  I think that we must put user protection aspects firmly into perspective as well.

The financial ADR system is, by introducing a system of designating dispute resolution agencies for each business category, intended to ensure, naturally, the fairness and impartiality in dispute resolution, as is evident from the involvement of experts, and also to ensure the effectiveness in dispute resolution by requesting financial institutions to, among other things, agree on procedures and respect a proposed settlement, as you know.  In view of the purpose of the ADR system, which is to provide a means of quick, simple and flexible complaint handling for users - in other words, to facilitate impartial and fair out-of-court complaint handling and work toward a mutually satisfactory resolution - the FSA is hoping that each authorized dispute resolution agency will perform appropriate operational functions so that complaints and disputes should be resolved successfully, and trust from users and effectiveness should be ensured in complaint handling and dispute resolution procedures.

(End)