Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, August 19, 2011, from 11:11 a.m. to 11:40 a.m.)

[Opening Remarks by Minister Jimi]

Today, the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors, which sets rules for such debt workouts was adopted as a measure to deal with the so-called double debt problem. The application of the Guidelines will start on August 22.

From the perspective of supporting the application of the guideline, a cabinet decision was made on the use of 1.07 billion yen in fiscal 2011 reserve funds for the restoration and recovery from the Great East Japan Earthquake at today's cabinet meeting to subsidize lawyer fees and other expenses incurred by disaster-stricken debtors when they use the service of the Guideline Management Committee.

I hope that this measure will facilitate debt workouts based on the Guidelines and help disaster victims make a fresh start toward reconstruction.

That is all I have to say.

[Questions and Answers]

Q.

I will ask you about deposit insurance.

There has been a media report that the government is considering reducing the insurance premium rate in the next fiscal year. Could you tell me about the current status and future schedule of the consideration?

A.

It is not true that the government has started considering reducing the deposit insurance premium rate for the next fiscal year. Between around fiscal 1996 and fiscal 2009, deficits totaling 7.5 trillion yen probably arose in Deposit Insurance Corporation's general account. Those cumulative deficits arose because of the financial crisis, and I understand that policy reserves totaled 137.3 billion yen as of fiscal 2010.

I think that we need to consider future insurance premium rates not only in light of the current financial condition of Deposit Insurance Corporation but also from medium- and long-term perspectives, including Deposit insurance Corporation's long-term financial condition, the current and future stability of Japan's financial system, individual financial institutions' ability to bear the burden of premium payments, and the need to avoid imposing an excessive burden.

Q.

Could you comment on a media report today that the government will consider strengthening the capital adequacy regulation regarding regional banks, too?

A.

Last December, Basel III, which includes regulations on capital adequacy and liquidity with regard to internationally active banks, was announced. I understand that internationally active banks based in Japan are preparing for gradual compliance starting in 2013.

As for domestically focused banks, which are known as domestic standard banks, we will consider how to treat them while taking due account of the circumstances of Japan and keeping in mind the need to ensure the soundness of financial institutions and to enable the exercise of the financial intermediary function.

When considering a specific framework, we believe that it is necessary to firmly grasp the actual status of the capital adequacy and business operations of domestic standard banks. To that end, we are collecting necessary information from far and wide, including from small and medium-size regional financial institutions. We will debate this issue in the future in light of the information collected while keeping a close watch on international debates and adequately listening to the opinions of the people concerned.

So far, I have read a statement prepared by my staff at the Financial Services Agency (FSA). As I have repeatedly mentioned, Hokkaido Takushoku Bank failed 12 or 13 years ago, in 1997, and then Yamaichi Securities failed. In 1998, Long-Term Credit Bank of Japan and Nippon Credit Bank failed, and in my home town of Kitakyushu, two major Sogo department stores, one located in front of Kokura station and the other in Kurosaki, were closed.

The more capital financial institutions have, the sounder they are. However, to raise their capital adequacy ratio to a high level, they are forced to tighten their lending stances in many cases. The tightening of lending stances led to the closure of two Sogo department stores, and their suppliers faced a very severe situation - as you know, various suppliers serve department stores. I know well about that, as it happened in my constituency at that time.

Although Sogo as a whole, as I remember it, faced a rather severe situation, I heard that the two stores in Kitakyushu were not in such a bad business condition. If financial institutions are required to maintain soundness beyond a realistic level, the economy shrinks considerably or even collapses while on the surface it seems to be good.

I know such dual aspects of banks well, so although news stories like that may allege that the government will require banks to build up capital, that is not true. Regional banks in particular play a very significant role in regional economies. Moreover, the SME Financing Facilitation Act stipulates that banks should exercise their consulting function and the guidelines for inspection and supervision have been revised. So, as long as I am the head of the FSA, the FSA will conduct financial administration in a well-balanced manner so as to suit the actual circumstances. I hope that you will adequately report on that point.

If banks concentrate on maintaining soundness, it will immediately cause borrower companies to worry that capital buildup may lead to the tightening of lending stances. As top priority should be placed on overcoming deflation and achieving post-earthquake restoration and reconstruction, we will conduct appropriate debate while paying due attention to those matters. I would like you to understand that.

Q.

I am Inoshita from Toyo Keizai. This is a question that I have been asking you for some time. When will the Committee on the Review of Administrative Actions regarding Incubator Bank of Japan (Nihon Shinko Ginko) publish its report?

A.

Today, at an informal meeting of cabinet ministers, Prime Minister Kan instructed us to properly settle matters that should be settled under his cabinet. The payoff (limited deposit protection) by Incubator Bank of Japan was implemented on my watch as the head of the FSA. As I explained at that time, while we established this review committee by selecting very respectable persons as its members in response to strong calls at an informal meeting of cabinet ministers for a review of this matter, there is an obligation of confidentiality associated with an administrative agency and there is also the Act on the Protection of Personal Information, so the committee is conducting its review with these things in mind. The review is in the final stretch, and I hope to settle this matter during the time I am in office - I do not know how much time I have left, as that is up to the Prime Minister's decision - as was instructed by the Prime Minister today.

Q.

Am I correct in understanding that the report will be published?

A.

That is what I have promised right from the beginning.

Q.

Regarding the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors that you mentioned at the beginning, preparations are under way in individual prefectures to establish an organization to purchase corporate debts. What is your assessment of the current movements of financial institutions in the disaster areas?

A.

For financial institutions in the disaster areas, namely the six prefectures of the Tohoku region and Ibaraki Prefecture, the situation is critical, so we enacted the (amended) Act on Special Measures for Strengthening Financial Functions on June 22. This law, which is a very extraordinary financial law, was enacted with the unanimous support of all political parties. We are keeping watch on financial institutions, including regional banks, Shinkin banks and credit cooperatives. I have instructed the new director-general of the Supervisory Bureau of the Financial Services Agency (FSA) to visit the earthquake-stricken areas next week first of all. Ahead of the director-general's visit, we dispatched the Director of the Banks Division II, Mr. Nishida, to those areas immediately after he was appointed to the post for a meeting with representatives from financial institutions in the Tohoku region. I have instructed the new Director-General of the Supervisory Bureau to visit the Tohoku region next week first of all. This is the top priority issue, so I greatly appreciate cooperation provided by financial institutions and life and non-life insurance companies in this respect. Regarding earthquake insurance, I have been told that insurance claims totaling more than one trillion yen have been paid, including more than 500 billion yen in Miyagi Prefecture alone. The other day, the chairman of a certain bank came to me after being appointed to the post at a general shareholders' meeting and told me that deposits at his bank's Sendai branch had increased.

Conventional wisdom would suggest that after a huge earthquake like that, deposits will decrease. When I asked for the cause of the increase, the chairman cited the earthquake insurance claims of 500 billion yen paid in Miyagi Prefecture alone as a probable cause.

As money is one of the most valuable things next to our lives, the FSA, together with the Bank of Japan, has worked hard since March 11. I was surprised when I heard of the increase in deposits at the Sendai branch from the chairman.

While deposits may have increased as an ultimate result of the payment of insurance claims, financial institutions have a very significant role to play in protecting the people's lives and industries in the Tohoku region in the wake of the once-in-a-millennium tsunami disaster, so keeping that in mind, we have been working hard since March 11 with a sense of obligation to exercise the FSA's powers to the maximum on behalf of disaster victims. Please feel free to point out anything you have noticed or anything lacking in our efforts. While I am responsible for supervising private financial institutions, I hope that all of us in both the public and private sectors will work together.

Let me mention one more thing concerning life insurance. The payment of death claims is made only after the issuance of a death certificate or an autopsy report by a doctor. Usually, the procedure for the adjudication of disappearance due to emergency takes one year to be completed. Regrettably, more than 5,000 people are still missing, and one year is too long a time to wait for the adjudication of disappearance due to emergency. Therefore, the FSA's director-general in charge held very tough negotiations with the Ministry of Justice, which is responsible for matters related to the certification of the death of missing people. As a result, it has been agreed to allow the death of missing people to be certified three months after their disappearance based on a notification submitted to municipal governments through a simplified procedure. While an arrangement like that is made behind the scenes, life insurance sales women are going from mortuary to mortuary with the relatives of missing people. As I am a doctor by profession, I know well what a great mental shock it is for ordinary people to see the body of a person killed in a disaster like that, but insurance sales women are going as far as to do that. As I told you previously, Ishinomaki Shoko Shinkumi, which could not be contacted for four days after the earthquake, continued to provide loans, with employees working by candle light. In that sense, I am very grateful to various people in the financial sector, including financial institutions, life and non-life insurance companies and securities companies, for dealing with the unprecedented earthquake and tsunami disaster through private-public collaboration. However, I am not so complacent as to believe that we have done enough. There are still many and various things that we can do, so I will appreciate your advice.

Q.

There has been a series of cases in which customer information held by foreign insurance and other companies was illegally sold through sales agencies. What is you view on that? Is it possible that the FSA will issue a business improvement order?

A.

I think that I have read a newspaper article about something like that. Quite naturally, financial institutions should properly protect customer information. I do not think that it is appropriate for me to make comments concerning specific companies. In any case, as rules are rules and laws are laws, the FSA will strictly monitor the situation.

(End)