Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, July 26, 2011, from 8:36 a.m. to 8:50 a.m.)

[Opening Remarks by Minister Jimi]

I am making an announcement concerning the cabinet decision on the cabinet order and Cabinet Office ordinance related to the Act to amend the Act on Special Measures for Strengthening Financial Functions to deal with the Great East Japan Earthquake. The bill to amend the Act on Special Measures for Strengthening Financial Functions was unanimously enacted on June 22, the original expiry date of the Diet session. Today, the cabinet order related to this Act was adopted upon a cabinet decision. The cabinet order, together with the relevant Cabinet Office ordinance, will be promulgated today and put into force tomorrow, June 27.

This act is intended to maintain and strengthen regional financial functions in a comprehensive manner and establish a secure framework that reassures depositors in light of the possibility that financial institutions will be affected in various ways by the Great East Japan Earthquake.

I hope that financial institutions in the disaster areas will positively consider using this act if their managers judge - as they are private financial institutions - that it will be appropriate to increase capital.

[Questions & Answers]

Q.

Regarding the Act on Special Measures for Strengthening Financial Functions, I understand that three banks have expressed willingness to apply for a capital increase. Are there any other financial institutions considering a capital increase?

A.

As has been reported by newspapers, three banks have expressed willingness to apply for a capital increase. They are Sendai Bank, 77 Bank and Tsukuba Bank. I am aware that these banks have expressed willingness to apply. However, as capital policy, including the use of this act, concerns the management decisions of the financial institutions, the Financial Services Agency (FSA) would like to refrain from commenting on the prospects for the application. In any case, I hope that financial institutions in the disaster areas will positively consider using this act if their managers judge that it will be appropriate to increase capital in order to appropriately and actively exercise their financial intermediary function for small and medium-size enterprises.

The FSA will actively and positively respond to requests for consultation on this matter.

Q.

Let me ask you one more question, which concerns the appointment of a new FSA Commissioner. Media reports say that Mr. Hatanaka, director-general of the Supervisory Bureau, will be promoted to the FSA Commissioner. Could you explain the thinking behind this appointment? Also, the Chief Cabinet Secretary has said that personnel changes related to director-generals and higher positions will be frozen. Am I correct in understanding that the freeze has been lifted?

A.

At an appropriate time - during today, I think - we will make a formal announcement.

Q.

Regarding the framework of capital adequacy regulation that has recently been determined, you said that you have high regard for it for reflecting Japan's arguments. However, given that a higher capital adequacy ratio will be required than before, how do you expect that it will affect the business model of Japanese banks?

A.

Frankly speaking, I appreciate Basel III for largely reflecting Japan's arguments. That is because until now, the United States and the United Kingdom have been strongly tilted toward financial capitalism. The Lehman shock has forced them to bail out financial institutions with taxpayer money. That was also the case with General Motors, a U.S. automaker, and AIG, the largest U.S. insurance company. That has greatly angered U.S. and U.K. taxpayers. The taxpayers are asking why their money should be used to make up for the failure of risk management by Wall Street financiers who have until now been making riches.

I strongly felt the anger when I visited the United States last year. Someone told me that 90% of Americans were angry. In Japan, too, the jusen problem occurred more than a decade ago, and 685 billion yen of taxpayer money was used. The people scolded us severely at the time of the jusen problem. Voters pressed us with questions demanding to know why taxpayer money should be used to make up for losses incurred by the financial industry in relation to the economic bubble.

As the United States and the United Kingdom are democratic countries, I understand the dynamics of their politics well. That leads the United States and the United Kingdom to insist that the required capital adequacy ratio should be raised. However, according to Japan's experiences, banks considerably tightened their credit stance in order to secure sufficient capital so that they could comply with the Basel regulation at that time, which required banks focusing on domestic businesses to have a capital adequacy ratio of at least 4% and banks engaging in international businesses to have a capital adequacy ratio of at least 8%.

As I have repeatedly mentioned, in Kitakyushu, my home town, two large Sogo department stores closed down, and that was a painful experience for me as a politician. There is a balance between individual countries in tradition and history. Japan's position is close to the positions of Germany and France, and I think that Japan's position is about right. There should also be a balance in International conferences like this. On one side are France and Germany and on the other side are the United States and the United Kingdom. In that sense, that suits Japan's circumstances. In democratic countries, the will of the people and public opinions are naturally important. As finance is mostly a matter of rationality, I believe that Japan was able to exercise its influence in that respect.

I believe that the Basel III regulation is such that Japanese banks can comply with it within the limits of their management efforts without producing a significant impact on the real economy. I appreciate it for being a well-balanced approach toward strengthening the global financial system as a whole.

Q.

The yen is rising. I presume that you have received feedback from companies in your constituency. Do you think that the yen's current level can be dealt with through efforts by companies alone?

A.

As to the yen's rise, it is mostly under the jurisdiction of the Minister of Finance, as you know. I have instructed the FSA staff to monitor the conditions of the market with strong interest, maintain close communications with the Ministry of Finance as well as other ministries, such as the Ministry of Economy, Trade and Industry, which is primarily responsible for matters related to non-financial companies. Also, as there is feedback from financial institutions, too, I have instructed the FSA staff to monitor the situation with eyes and ears much more wide open than usual.

Thank you very much.

(End)