Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, October 5, 2010, from 11:38 a.m. to 12:03 p.m.)

[Opening Remarks by Minister Jimi]

Yesterday, I took a trip to Osaka in order to grasp the reality of business and financing conditions of regional small and medium-size enterprises (SME) and other entities. While in Osaka, a center of the traditional Japanese commerce and economy as well as a commercial center ever since the Edo era, I met with managers of financial institutions and four different SME business groups, including the Osaka Chamber of Commerce and Industry, to exchange frank views about the current state of Osaka and the Kinki region. During our talks, it was pointed out that business appears to be picking up in some segments of the manufacturing industry, but the circumstances surrounding SMEs still remain harsh, particularly in exporting companies, given the apprehension about their future, partly due to the appreciation of the yen. I had expected that this grave reality would be emphasized and did indeed hear the four SME business groups, or presidents and chairmen of regional banks, or shinkin banks and credit associations whose main customers are SMEs, also speak about the extremely strong impact of the high yen.

The Financial Services Agency (FSA) is, in consideration of collected comments, intent on continuing to work to deliver smoother financing opportunities for SMEs and other companies. Being Minister for Postal Reform as well, I also visited post offices in the area to inspect, among other things, the status of their operation in the field and to exchange specific ideas. When I talked with reporters in an impromptu interview there, one of the questions was about the prospects for the SME Financing Facilitation bill. I replied that the FSA seems to be independently making various arrangements, including gathering specific data, and that I would like to form a judgment as I put in perspective the extension of the Act and also take into account the business condition of SMEs - I said this in both Osaka and Nagoya, where I visited last week.

That is all from me.

[Questions & Answers]

Q.

The other day, the prefecture of Osaka submitted a request to establish a special money lending zone, within the boundaries of which some provisions of the amended Money Lending Act would be relaxed. I believe that a final decision on this is expected to be made this fall - how is its progress now?

A.

As you have just said in your question, the prefecture of Osaka announced its revised opinion on September 24, seeking acceptance of its idea to establish a small, special financial zone for structural reform, which is now being reexamined by the competent authorities, the FSA, the Consumer Affairs Agency and the Ministry of Justice.  Considering that as loans may be made across prefectural borders on the part of both lenders and borrowers, Osaka prefecture's idea for a special zone could, if realized, naturally entail a situation where someone from Kyoto prefecture or Hyogo prefecture goes to Osaka to borrow money, the FSA is of the opinion that it would be difficult to limit its use to a specific region. As fairness before the law is a norm in Japan, I think that exempting from criminal prosecution the practice of lending at an interest rate higher than the upper limit under the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates (Shussi Hou) in a particular geographical area only - a concept at issue here - would go against the principle of fairness before the law. Since the current regulation under the amended Act, which the media covered extensively when it was established, is a legislative step supported unanimously by all parties to address the multiple-debt problem, as I point out repeatedly, creating any exemption designed to relax its enforcement could result in its social significance being compromised. It is on those grounds that we are in the process of formulating a statement in our second reply that it would be difficult, or not acceptable, to undertake the idea. While that is how the FSA sees the matter at this time, however, I am aware that this very valuable request brought anew from Osaka prefecture should ultimately be left to the decision of the responsible section in the Cabinet Secretariat - therefore, I would like you to understand that what I have just said is the FSA's conclusion of its examination.

Q.

Given that this coming Sunday, October 10th, will mark exactly one month from the failure of the Incubator Bank of Japan and the first ever implementation of the "pay-off" scheme triggered as its consequence, could you please reflect on the administration's reactions and related matters in the past one month - for instance, whether there have been any challenges?

A.

It is now one month later and, from what I heard, there has not been any particular confusion after the Incubator Bank of Japan resumed its business and it has been handling account termination and other procedures without a hitch, for which I extend my gratitude to the depositors, who have responded calmly.

In any case, seeing as the scheme protects up to 10 million yen in principal along with interest per depositor regardless of when it is paid back, while the portion of principal in excess of 10 million yen, along with interest, will be repaid in accordance with civil rehabilitation procedures, I would like to ask depositors to continue acting calmly.

For your information, I have been informed that a total of 66.2 billion yen, or 11.3% of all deposits, is thus far subject to account termination requests, of which up to 10 million yen is repayable per person, which strikes me as fairly calm reactions on their part.

Q.

I am Sonoda from Hokenmainichi Shimbun.

On the subject of the amendment to the Insurance Business Act regarding mutual aid activity regulation, it seems that some public interest corporations engage in a financing service charging low interest rates under the name of a mutual aid business, which, reportedly, has led to bad debts and other problems. Given those circumstances, please tell us your view of whether it would really be acceptable or not to set in place some kind of system overseen by the FSA under the new amended Act, or why the FSA has no oversight role.

A.

I appreciate the awareness that Hokenmainichi always has of this matter - well, I understand that the proposed amendment to the Act is to be continued to the next session for deliberation.  The amendment involves establishing, from the standpoint of policyholder protection, certain regulations applicable to those corporations already engaged in a mutual aid business prior to the 2005 amendment to the Insurance Business Act that meet certain requirements, in order for them to maintain their mutual aid business, at the same time to ensure that proper operation in their activities.  As your question implies, public interest corporations have thus far been supervised by their respective competent government agencies, which accordingly have knowledge of their operations and a set of information accumulated through the work of supervision in the past.  For that reason, we believe that they are capable of delivering more in-depth supervision than the FSA could muster and are therefore in a more appropriate position in view of policyholder protection.  As statutory mutual aid activities are similarly supervised by the respective authorities, and also considering that the proposed exemption is not meant to be permanent but is a provisional arrangement, we concluded that it would be more appropriate to have the same authorities continue to be responsible for supervision.

The number of public interest corporations that stated, in their reply to a questionnaire, that they are "engaged in a mutual aid business" is 329, including, for example, Nissho (Japan Firefighters Association), which is an organization that has been around since the pre-war days and has always been supervised by the Fire and Disaster Management Agency, now under the Ministry of Internal Affairs and Communications.  Other examples include medical associations, dental associations and pharmaceutical associations that have been supervised by the Ministry of Health, Labour and Welfare for over 100 years, including the years of supervision by its predecessor, the Health and Medical Bureau of the Ministry of Internal Affairs in pre-war periods. Also, the Japan Racing Association Mutual Aid Group is an auxiliary organization of the Livestock Industry Department of the Ministry of Agriculture, Forestry and Fisheries, because horse racing has traditionally been a livestock business. As all those organizations have thus far been supervised by their respective competent agencies, which accordingly have knowledge of their operations and a set of information accumulated through the work of supervision, the FSA concluded, following a thorough look into any issues involved, that it would be more appropriate to have those authorities continue to supervise them, seeing as the current measure is meant to be provisional.

(End)