Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, August 30, 2011, from 10:45 a.m. to 11:15 a.m.)

[Opening Remarks by Minister Jimi]

The Kan cabinet resigned en masse today. As will be mentioned in a statement to be issued by the Prime Minister, we have tackled various policy challenges since the inauguration of the cabinet in June last year in the governing coalition of the Democratic Party of Japan (DPJ) and the People's New Party. At the informal meeting of cabinet ministers, I, as deputy leader of the People's New Party, expressed my gratitude to the DPJ's President and my cabinet colleagues for our collaboration. Four years ago, when I won a seat in the House of Councillors, I formed an opposition parliamentary group that brought together the DPJ, Shin-Ryokufukai, the People's New Party and New Party Nippon. And then, in a general election that was held two years ago, the DPJ and the People's New Party worked together to achieve a historic change of government. I have had valuable experiences as a politician, and there were ups and downs, but our party and the DPJ have supported each other.

First, let me make a statement concerning the publication of a report by the Committee on the Review of Administrative Actions regarding Incubator Bank of Japan (Nihon Shinko Ginko).

Last Friday, August 26, the Committee on the Review of Administrative Actions regarding Incubator Bank of Japan submitted a report on the results of the review. I would like to offer my heartfelt thanks to Chairman Kusano and other members of the committee for their hard work on the review. This report contains various findings related to the past financial administration. We will take this report's findings seriously and closely examine them, reflect on faults and make full use of the findings to improve and enhance our financial administration.

Specifically, the report points out an “inappropriate granting of a license”. According to the report, “the Financial Revitalization Program was a policy initiative formulated upon the instruction of Minister Heizo Takenaka, so it was an initiative of his own.” It points out that “this program set forth the policy of speeding up the approval of banking licenses” and that “Minister Takenaka announced this program on October 30 without the direct involvement of the FSA Commissioner and other FSA staff in its formulation.” The report adds that “the FSA was notified about this program at the same time as its public announcement; the FSA staff was ordered to conduct financial administration based on it” and that “Mr. Tsuyoshi Kimura explained its contents to the FSA staff.” The report also points out that “the FSA staff felt compelled to grant a license (to Incubator Bank of Japan) under pressure from the policy of speeding up the approval of banking licenses amid the atmosphere that made it appear as if the implementation of the Financial Revitalization Program was the imperative.”

The person responsible for authorizing the grant of the banking license is the Minister for Financial Services.

In light of the results of the review, I believe that it has become clearer than before that former Minister for Financial Services Takenaka, who was responsible for authorizing the grant of the license, bears moral responsibility.

I understand that the cause of the failure of Incubator Bank of Japan will be examined and the civil and criminal responsibility of former managers of the bank will be strictly pursued. In any case, we will take this report's findings seriously, closely examine them, reflect on faults, and make full use of the findings to improve and enhance our financial administration.

I also have an announcement to make. I appointed three persons as Advisers to the FSA, effective yesterday, August 29, in order to seek their opinions on international accounting standards.

One of them is Naoto Ohmi who is Assistant General Secretary of the Japanese Trade Union Confederation (Rengo). The other two are Yukihiro Sato, who is a former Executive Vice President of Mitsubishi Electric Corporation and is now a Senior Executive Advisor at the company, and Hiroshi Hirose, who is the Vice Chairman of Sumitomo Chemical Co., Ltd. and a former President of the company. Mr. Hirose is the Chairman of Keidanren's Committee on Corporate Accounting. In any case, I have appointed them as Advisers because I have concluded that they are the right persons from whom to seek opinions on international accounting standards.

That is all I have to say.

[Questions & Answers]

Q.

Could you elaborate on the postponement of the mandatory application of IFRS and the purpose of the appointment of these people as Advisers?

A.

As you know, there is uncertainty over whether the mandatory application of IFRS to Japanese companies will be recommended in an interim report to be issued next year. The other day, the Chairman of the Business Accounting Council observed that if the interim report is delayed too much, speculation is likely to grow over whether or not the mandatory application of IFRS will be introduced in 2015. After attending the Business Accounting Council's meetings regarding IFRS, I remember that observation well.

In any case, the EU adopted IFRS in 2005 and the United Kingdom shifted to it from the previous standard. In France, 300 companies listed on the major section of the stock exchange have adopted IFRS, while others use the French standard. In Germany, 600 companies listed on the major section have adopted IFRS and others use the German standard. Four years ago, during the period of the Bush administration, the SEC (Securities and Exchange Commission) announced that the United States would shift to IFRS, and subsequently, Japan's Keidanren, as well as the Financial Services Agency (FSA), concluded that Japan should also adopt IFRS amid the ongoing economic globalization, following suit of Europe and the United States in shifting to IFRS, given that the United States is the world's largest market and Europe as a whole is an even larger market than the United States. Consequently, an interim report recommending the adoption of IFRS was issued.

Since the Obama Administration was inaugurated in the United States, particularly since the Lehman shock, a Copernican change has occurred in the global economic conditions, so Japan is not thinking of introducing the mandatory application of IFRS in the fiscal year ending in March 2015, as I announced to you. If we are to introduce the mandatory application, we will set a sufficient transition period of five to seven years from the decision. The use of the U.S. standard, which was scheduled to expire in the fiscal year ending in March 2016, will continue to be allowed.

As this is a Cabinet Office ordinance, it will be promulgated (and put into effect) tomorrow following the public comment period that recently ended. Looked at from the outside, it may appear as if the FSA has made a policy shift concerning international accounting standards under my political leadership. In that respect, the debate considerably settled down at the second meeting of the Business Accounting Council (joint meeting of the General Meeting and the Planning Coordination Subcommittee of the Business Accounting Council) as I revealed to you. Of course, I welcome lively debate. However, as I said at that time, accounting is related to international business strategy and it is not merely a technical issue. We added 10 new members from various fields so that wide-ranging discussions will be conducted from the perspectives of companies' positions in the economy, the national history, traditions and the cultural environment, as liberalism is a sort of culture.

Of course, corporate accounting standards are very closely related to the relevant country's tax system and corporate laws in various ways. Keidanren, to which Mr. Hirose, one of the newly appointed Advisers, belongs, supported the mandatory application of IFRS three years ago. However, following the change in the U.S. SEC's stance, the situation has become such that Keidanren has received a letter of opinion signed by the CFOs of 22 major Japanese manufacturers, including the Japan Chamber of Commerce and Industry. That was an opinion of people on the frontlines, as it is companies that actually use international accounting standards.

This is a global issue, and it is not only related to the economy and accounting technicalities. It is also an important issue related to national economic strategies. Therefore, Keidanren raised the status of the person in charge of the Committee on Corporate Accounting - I hear that committees, which are comprised of divisions and various other organizations, have a very high status - and appointed as the committee's new Chairman Mr. Hirose, who succeeded Mr. Yonekura (the current Chairman of Keidanren) as President of Sumitomo Chemical and who is now Vice Chairman of the company.

I have talked with Chairman Hirose, who expressed his intention to take Keidanren staff members particularly to the United States, Europe, China and India as an initiative conducted from a broad perspective. Meanwhile, Rengo is an organization that brings together labor unions, as you know. IFRS' approach to profit is very different from the Japanese standard's approach in that it uses comprehensive profit as a profit benchmark. For labor unions, how to secure workers' share in the distribution of profits is a very important issue at the time of spring wage negotiations and on other occasions. In that sense, as a priority policy, Rengo has decided to oppose early introduction of IFRS. Mr. Ohmi, Assistant General Secretary of Rengo, is in charge of accounting, so we selected him as an Adviser.

Mr. Sato has a long period of experience in the field of accounting, as you know. Having long worked for Mitsubishi Electric, a major Japanese electric machinery manufacturer, he has an experience as a manager as well as an accounting expert, as he served as Vice President of the company.

Those are the reasons why I appointed these three people as Advisers.

Q.

Could you summarize your tenure as the Minister for Financial Services and Postal Reform? Could you also comment on the new government under Mr. Noda, who was elected as the DPJ's new leader in the DPJ leadership election yesterday?

A.

Regarding Mr. Noda, his election as the new leader is the DPJ's decision. As I always say, we are working in a coalition government of the People's New Party and the DPJ. I think that Mr. Noda, who was elected as the new leader through the DPJ's formal procedure, is an excellent man. As I am the Minister for Financial Services, I have frequently attended the same committee session as Minister of Finance Noda for the past one year and two months or so. I have always regarded him as an excellent man with a very broad mind.

As for my tenure as Minister, I was appointed as the Minister for Financial Services and Postal Reform in June last year. To put it simply, I believe that I have done my best to perform my duties with the support of Senior Vice Minister for Financial Services Azuma, Parliamentary Secretary for Financial Services Wada, and Parliamentary Secretary for Internal Affairs and Communications Morita.

Let me cite major measures that I have so far implemented as the Minister for Financial Services, although I do not want to sound boastful. In June last year, I established the Revised Money Lending Act Follow-up Team when the revised act was fully put into force, in order to grasp the status of enforcement. I believe that in September last year, I appropriately dealt with the failure of Incubator Bank of Japan and Takefuji's application for corporate reorganization procedures, from the perspective of the stability of the financial system and the protection of users.

In December last year, I ensured that the annual budget reflected the FSA's request for extending the application of the reduced tax rate for securities-related income for two years, which was a great focus of attention in the securities industry.

In December, the FSA wrapped up the Action Plan for Invigoration, etc. of Financial/Capital Markets and Financial Industry, to make it easier for small and medium-size Japanese enterprises to advance into Asia and take advantage of Asian economic development, as this is an Asian era. The FSA created a new scheme, together with the Ministry of Finance, the Ministry of Economy, Trade and Industry, JETRO and JBIC.

In March this year, we extended by one year the period of the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc., and revised the supervisory guidelines in order to encourage the enhancement of consulting functions.

In response to the system problem that occurred at Mizuho Bank in March this year, we issued an Order to Improve Business Operations to Mizuho Bank and Mizuho Financial Group in May.

In June this year, I issued a statement as the Minister for Financial Services with regard to the study on international accounting standards, specifically the application of IFRS, and held a joint meeting of the General Meeting and the Planning Coordination Subcommittee of the Business Accounting Council, after appointing additional committee members from various fields.

Regarding international affairs, amid the ongoing financial globalization, I ensured that a consultation paper concerning global systemically important financial institutions (G-SIFIs) that was issued by the Basel Committee reflected the FSA's arguments, such as that we should aim to adopt a comprehensive policy package, rather than focus on additional capital requirements.

The Great East Japan Earthquake on March 11 was the biggest event during my tenure as the Minister. On that day, together with the Governor of the Bank of Japan, I requested financial institutions to take appropriate financial measures, such as flexibly paying back deposits to people who lost passbooks and seals, and quickly paying insurance claims through simplified procedures. For example, household earthquake insurance claims totaling 1.12 trillion yen had been paid as of August 17.

To maintain and strengthen financial functions in a comprehensive manner and reassure depositors in the disaster areas, we amended the Act on Special Measures for Strengthening Financial Functions, which provides for governmental capital injection, adding special provisions related to the earthquake disaster. This act was put into force on July 27 with unanimous support.

We have also provided support for the formulation and management of the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors, to facilitate debt workouts for disaster victims who cannot repay existing debts.

As the Minister for Postal Reform, I regret to say that despite the establishment of a special committee on postal reform in the House of Representatives, the postal reform bill has not been enacted in the current Diet session. However, I am deeply grateful to the many people who made efforts toward the enactment of the bill for their hard work. By now, we have twice asked the Speaker of the House of Representatives and the Chairman of the Committee on Rules and Administration of the House of Representatives to start deliberation on the postal reform bill, and I mentioned the need to promote deliberation on the bill on more than 10 occasions at informal meetings of cabinet ministers. I asked former Prime Minister Kan, who was the DPJ leader, to directly instruct DPJ executives such as Secretary-General Okada to strive toward the enactment of the bill.

As for activities related to the Great East Japan Earthquake, I went to the disaster areas on April 16 and visited the Ishinomaki post office. As I told you, I saw with my own eyes problems arising from the division of Japan Post into five companies. The important thing is that under a decision made by the Reconstruction Headquarters in response to the Great East Japan Earthquake, the basic policy for the recovery from the Great East Japan Earthquake stipulates that it will be ensured that the network of post offices is operated so as to provide a comprehensive set of basic postal services at post offices. I have done my best to carry out all these tasks that I mentioned.

Q.

I am Takahashi, a freelance journalist. I have two questions concerning the report issued by the Committee on the Review of Administrative Actions regarding Incubator Bank of Japan (Nihon Shinko Ginko). What do you think of the refusal by Mr. Takenaka and others to meet the request for hearings? Also, don't you think it is necessary to more thoroughly pursue responsibility related to the process of formulating the Financial Revitalization Program?

A.

Regarding former Minister Takenaka, I received a similar question in relation to the Takenaka Plan (Financial Revitalization Program). There are not any minutes of debate on this program. According to the review committee's report, Former Minister Takenaka notified the FSA of the Financial Revitalization Program, which was, so to speak, his personal plan, at the same time as its public announcement, without the direct involvement of the FSA Commissioner and other FSA staff in its formulation. The FSA staff was ordered to conduct financial administration based on this program, and it was Mr. Tsuyoshi Kimura who explained its contents to the FSA staff, according to the report.

The report also points out that the FSA staff felt compelled to grant the license under pressure from the policy of speeding up the approval of banking licenses amid the atmosphere that made it appear as if the implementation of the Financial Revitalization Program was the imperative.

In light of the results of the review, I believe that former Minister for Financial Services Takenaka bears very grave responsibility. According the results of the review as described in the report, the responsibility for authorizing the grant of the license rested with former Minister for Financial Services Takenaka, so it has become clearer than before that he bears moral responsibility.

On the day when I invoked the payoff measure (limited deposit protection), I said that Mr. Takenaka bears moral responsibility, and this report has made it clearer than before that he bears moral responsibility. I also presume that legal and civil responsibility may also be discussed.

I understand that the causes of the failure of Incubator Bank of Japan will be examined and the civil and criminal responsibility of former managers will be strictly pursued by the Deposit Insurance Corporation, which is the financial receiver, and other organizations. That will be done in accordance with the law. In any case, I hope that Deposit Insurance Corporation will consider pursuing legal and civil responsibility of former Minister Takenaka, after closely examining the results of the review as described in the report.

Q.

This question is not related to the results of the review committee. It is nearly one year since you invoked the payoff measure, and the Incubator Bank of Japan has caused considerable damage as deposits were not fully paid back to depositors. Looking back at the past year, how do you feel about that? When Incubator Bank of Japan failed, the FSA stressed that that bank was a very extraordinary bank. What are your thoughts on future challenges, such as how to improve the soundness of the financial sector as a whole and the soundness of financial institutions?

A.

Frankly speaking, the tenure of Mr. Takenaka was an extraordinary period. I was a lawmaker of the ruling party at that time. I hear that he set forth the Takenaka Plan in a top-down decision one month after he took office as Minister, without much involvement of the FSA in the formulation of the plan. In that sense, his approach was quite different from the conventional approach. As for Incubator Bank of Japan, opinions were divided whether to grant a banking license to the bank, as indicated in the documents written at that time and the review committee's report. Let me quote some paragraphs. There was an argument that “This is a measure to facilitate financing for small and medium-size enterprises (SMEs) as prescribed in the Financial Revitalization Program, so a license should be quickly granted to the new bank. A license cannot be denied as this is intended to create a bank specialized in lending to SMEs. Screening should be completed quickly.” On the other hand, as a result of hearings with 16 FSA staff members, the report states: “This is an extraordinary bank in that its business model caters to a new market called a middle-risk market, in which it provides loans to SME at annual interest rates ranging from 3% to as high as 20%. The business model of providing loans in such a market involves significant credit risks. Furthermore, as this bank does not offer a deposit service for the settlement purpose, it may be in effect a nonbank lender. There was an argument that in relation to the Money Lending Act, a careful screening is essential.” The careful review has shown that opinions were widely divided within the FSA. With that in mind, we must take the report's findings seriously and conduct a necessary review. Under Article 4 of the Banking Act, an applicant for a banking license must meet three conditions. The conditions are: having an economic and financial basis sufficient to conduct banking business, having good prospects for the balance of revenues and expenditures, and having social credibility. The report suggests that the application for a license for Incubator Bank of Japan was not adequately examined with regard to those conditions. We must learn a lesson from that case and properly perform our duties, so as not to invite such criticism.

Q.

What do you expect of the Noda cabinet?

A.

As Mr. Noda is a man of serious and mild character, I think he will bring proper and stable government.

Q.

In a retrial concerning the window-dressing of Nippon Credit Bank's earnings, the defendants were acquitted, following the acquittal of the defendants in a similar case related to Long-Term Credit Bank of Japan. Could you comment on that?

A.

I am aware that Tokyo High Court made such judgment. As this is a judicial judgment, I would like to refrain from making comments.

Q.

Regarding the lineup of new Advisers, it seems that the majority are cautious on or opposed (to the mandatory application of IFRS). Making an unbalanced selection in favor of people with a bias may create preconceptions in the debate conducted by the Business Accounting Council. Could you comment on that?

A.

I do not have such worries. As this is a debate on corporate accounting, we need experts on corporate accounting, and pay attention to the social impact of corporate accounting. Rengo is an organization comprised of workers, so I do not have such worries. I am confident that appropriate experts have been selected as Advisers.

Thank you very much for your support during my tenure as Minister.

(End)

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