Press Conference by Shozaburo Jimi, Minister for Financial Services


(Tuesday, October 11, 2011, from 11:25 a.m. to 12:05 p.m.)

[Opening Remarks by Minister Jimi]

For six days from October 3, I visited Germany, France and the United Kingdom to meet with officials of the financial and postal authorities. During the visit, I had a frank exchange of opinions with those officials about the economic and financial situations in Europe and future European efforts to stabilize the financial system and learned firsthand about their serious approach to the challenges they now face.

Regarding postal reform, I had an exchange of views about the current status of postal reform in Germany and the United Kingdom, and actively communicated the significance of Japan's postal reform to the international community, so I believe that my European tour was very meaningful.

Among major officials I met with was President Kurth of the German Federal Network Agency. Postal service, as a public network of services, is under the jurisdiction of the Federal Network Agency. If I remember correctly, in the case of the federal German government, electricity and public railways are also under the jurisdiction of the president of the Federal Network Agency.

I also met with Mr. Gerdes, a member of the management board of Deutsche Post, who is in charge of mail. In the case of Deutsche Post, which has been focusing on mail business, I hear that Postbank, which is the German equivalent of the postal savings business of Japan, accounts for only 1% of the total savings, so the role of postal savings is very small by international standards. Instead, cooperative savings banks operated by regional and municipal governments play a very large role, so Deutsche Post's savings division has traditionally been small.

I also met with Mr. Bernardino, chairman of the European Insurance and Occupational Pensions Authority, which is an EU organization. He is Portuguese.

In a meeting with Ms. Lautenschläger, the well-known vice president of the Deutsche Bundesbank, which was also attended by another member of the bank's executive board, I listened to her opinions about various matters.

In France, I met with Mr. Haas of the French Accounting Standard Authority, as the Financial Services Agency (FSA) has jurisdiction over matters related to international accounting standards in Japan.

In the United Kingdom, I met with Lord Turner, Chairman of the UK Financial Services Authority, who is the U.K. equivalent of the FSA Commissioner of Japan.

I also held a meeting with Governor King of the Bank of England, which has a long tradition and history. In the United Kingdom-the world's first country to introduce capitalism and achieve industrial revolution-the Bank of England, which is the central bank, was owned by various banks until 1945, and in 1946, it was nationalized for the first time. After Churchill left government, the Labour Party formed a cabinet and nationalized the Bank of England. [Officials of the Bank of England] stressed that although the bank was nationalized under law, its operations have remained unchanged. Japan naturally created the Bank of Japan as a state-run bank, while in the United Kingdom, where industrial revolution, capitalism, and financial markets emerged spontaneously, the Bank of England was not nationalized until 1946, after Churchill left government. [Officials of the Bank of England] repeatedly stressed that there is no difference between the central bank's operations before and after the nationalization. I felt their pride in industrial revolution, capitalism and the City as the birthplace of financial business.

I also met with Mr. Hoban, who is in charge of financial affairs as the Financial Secretary to the Treasury, and Mr. Davey, Minister at the Department for Business Innovation and Skills, who is in charge of postal affairs. In the United Kingdom, postal affairs are under the jurisdiction of the minister at the Department for Business Innovation and Skills, which handles a very broad range of matters. Mr. Davey is a Liberal Democrat. I did not know this, but the first person in the world to create the three postal businesses was former U.K. Prime Minister Gladstone. Gladstone and Disraeli were powerful politicians of the era of Queen Victoria, when the United Kingdom built an empire that spanned the seven seas. Gladstone was a member of the Liberal Party, the predecessor of the Liberal Democrats. As Mr. Davies is a descendent of the Liberal Party, he was well aware of Gladstone's role in the creation of the postal businesses. He pointed out that the Liberal Democrats, rather than the Conservatives, are descendents of that tradition. As I studied matters like that when I was Minister of Posts and Telecommunications, his words evoked the memories of those days. At the same time, I was impressed by U.K. lawmakers' depth of historical knowledge.

I also held talks with Mr. Hoogervorst, who is a former Dutch Minister of Finance and who succeeded Sir. Tweedie, a Briton, as chairman of the International Accounting Standards Board (IASB).

That is all I have to say.

[Questions & Answers]


Regarding Europe, which faces prolonged fiscal and financial problems, the turmoil has extended to Dexia, a private bank. Some people at Japanese and U.S. authorities say that European authorities have not been quick enough in taking action despite their efforts to do something. What is your view on that point?


I am aware that as you pointed out, Dexia, a banking group based in Belgium and France, faces a crisis and that yesterday, October 10, the governments of Belgium, France and Luxemburg agreed on a bailout plan. Concerns over the management of Dexia have grown, as shown by a plunge in the bank's share price, following a credit rating agency's announcement on Monday, October 3, that it will review Dexia's credit rating for possible downgrade. As a result, on Tuesday, October 4, the governments of Belgium and France expressed their intention to guarantee all of the bank's liabilities, including deposits, and take other necessary actions. I understand that in light of these circumstances, the countries concerned agreed yesterday, October 10, that after the breakup of the bank, the Belgian government will acquire 100% of the banking division located in Belgium to put it under public control and the liabilities of the remaining divisions will be guaranteed by the governments of Belgium, France and Luxemburg. As Dexia does not have either a branch or subsidiary in Japan, I would like to refrain from making specific comments. However, I believe that it is highly laudable that since the crisis has emerged, the countries concerned have acted quickly.

The response to the current situation in Europe that has been caused by the Greek problem has been discussed at a series of meetings of euro-zone and EU Ministers of Finance and meetings between German Chancellor Merkel and French President Sarkozy, as you know, and I strongly hope that progress will be made in the response.

As for the impressions that I had during my visit to Europe, the EU comprises 27 countries, of which 17 use a common currency, the euro. Politically, all these countries are parliamentary democracies. However, economically, some countries, such as Germany, are advanced, internationally competitive and highly productive, while others are not. Even so, they use the euro as their common currency and the governments of individual countries have no decision-making power over monetary policy. They have power over fiscal policy. Over the past 200 to 300 years, particularly since the industrial revolution in the United Kingdom, which I mentioned earlier, Nazism collapsed, representing the end of totalitarianism, and the Soviet Union collapsed, marking the end of the central force of the planned economy, socialism and communism. Consequently, the whole world has become dominated by liberalism, or I should say capitalism. Over the past 200 years, the European or U.S. brands of liberalism and parliamentary democracies have led the world since the industrial revolution. Therefore, I hope that Europe itself will decide how to deal with its own affairs. The eyes of the world are on Europe. I presume that Europe has pride and responsibility as a global leader. Circumstances may differ from country to country. In democracies, politicians may see their parliamentary seats or their parties come under threat if they do not argue for the interests of their own countries. However, as there are significant areas of common interest for the whole of Europe, I would like European countries to thrash this problem out among themselves. I am sure that they can find a solution.

There is the European Financial Stability Facility (EFSF). As you know, in January, immediately after the EFSF issued euro bonds totaling around 5 billion euros, Japan announced a plan to 20% of them, worth one billion euros, or around 100 billion yen. The next day, when I met with Ms. Lagarde, who was French Minister of Finance at that time and is now the Managing Director of the IMF, she expressed appreciation for Japan's purchase of 20% of the euro bonds, saying that it would stabilize the euro. Financial and economic globalization has proceeded simultaneously around the world, so I hope that Europe will decide how to deal with its own affairs. Once the decision is made, Japan will of course provide as much support as possible. Because of the severe European situation, Japan has been afflicted with a strong yen. The weak euro, rather than a strong yen, is the problem; that is the cause of the yen's strength. The weak dollar is the cause of the yen's strength. That is having a very considerable impact on Japan in terms of the economic condition and employment. Therefore, stabilizing the economic and financial situations in Europe will eventually be in the interest of Japan. So, to the people I met, I stressed Japan's readiness to provide support once the decision is made.

That was also stressed by Minister of Finance Azumi when he attended the recent G-20 meeting. I and Mr. Azumi consulted with each other on that point in advance. Before today's cabinet meeting, I told Mr. Azumi that I had stressed that point to the European monetary and fiscal authorities in accordance with our prior consultations. He is scheduled to attend another G-20 meeting soon.


Regarding the response to the double loan problem, it has been pointed out in the Diet that the number of requests for consultation about the use of the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors is small. What do you think of that?


That was discussed in a recent Diet session. Over the one and a half months or so from the start of the use of the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors to Friday, October 7, 1,100 requests for consultation have been received by the Management Committee of Individual Debtor Guidelines for Out-of-Court Workouts, as I said in the Diet. Although I said in the Diet that there had been only 6 cases in which consultation resulted in an application for the use of the guidelines, the number has risen slightly since then, to 16. In addition, there are more than around 100 cases in which experts are providing specific consulting with a view to an application, as I understand it.

As for the contents of consultation, some 40% of the around 1,100 requests for consultation received are inquiries about the debt workout scheme in general and the remaining 60% or so are inquiries related to the specific circumstances of disaster victims. I hear that among the inquiring disaster victims, there are many people who are waiting to see developments related to regional reconstruction plans and nuclear damage compensation or who are refraining from applying for the use of the guidelines because banks and other financial institutions are allowing the temporary suspension of the repayment of debts.

In any case, we will make efforts to ensure universal awareness of the guidelines so that people to whom the guidelines are applicable recognize the possibility of debt workout.

The Management Committee is headquartered in Tokyo and has branches in three prefectures, as I stated in the Diet the other day. Among other contact points are organizations familiar to disaster victims, such as municipal government offices, agricultural and fishery cooperatives, and ordinary financial institutions. Disaster victims feel comfortable about visiting such locations for consultation. From my experience, people who have nobody to consult with agonize over the question of whether they should apply for the use of the guidelines. Therefore, I have instructed that efforts be made to make it as easy as possible for such people to seek consultation. TV has significant influence in this respect, so we are airing spot TV ads about the availability of the guidelines.

In any case, the number of requests for consultation is still small, so the guidelines are criticized for poor usability. We must take such criticism seriously. As the guidelines are managed under an agreement reached among private-sector parties about debt workout for people facing difficulty repaying debts due to the earthquake damage, it is necessary to explain the guidelines in plain terms to disaster victims, hear from them about their circumstances carefully from their standpoint, and conscientiously deal with their cases when managing the guidelines. The government will keep watching how the parties concerned will act so that debt workout based on the guidelines will proceed smoothly.


Specifically how do you expect the failure of Dexia will affect Japan's financial market?


As I said earlier, I would like to refrain from commenting on the impact of the bailout of Dexia following its failure, as the details of the bailout have not yet been revealed. Generally speaking, I understand that public bailout of a financial institution is desirable for Japanese financial institutions as market players, as it restores the financial soundness and credibility of the troubled financial institution, and provides some degree of reassurance to the financial market.

In any case, although Dexia does not have a branch in Japan as I said earlier, the FSA will keep a careful watch on future developments related to the bank with a high level of alertness so as to prevent any unforeseen impact from hitting Japanese financial institutions. As you may well know, Dexia is specializing in loans to local governments. In Japan, too, there used to be a public financial institution specializing in loans to regional public enterprises, called Japan Finance Corporation for Municipal Enterprises, which was under the jurisdiction of the former Ministry of Home Affairs. I hear that Dexia was created as a result of the privatization of an institution like that, so from what I heard during my visit to Europe, I suppose that it is somewhat different from a commercial bank. In any case, I think that the governments of France, Belgium and Luxemburg have acted quickly.


What do you think is the difference between the current financial crisis and the Lehman shock, and which do you think will have more serious consequences?


If the Lehman shock of three years ago is to be compared to a magnitude 9 earthquake, then the current financial turmoil in Europe is an aftershock. European banks, including Dexia, received public funds three years ago, if I remember correctly. European financial institutions have much closer relationships with U.S. financial institutions than with Japanese ones. I refrain from commenting on which crisis is more serious, as I strongly hope that this crisis will be settled through negotiations in the European financial markets and stability will be restored. Judging from what I heard from the vice-president of Deutsche Bundesbank and the governor of the Bank of England, the situation is very serious. As I said, the bailout plan is subject to parliamentary approval. While German Bundestag (national parliament of the Federal Republic of Germany) has approved the plan to expand the EFSF, the Slavak parliament has yet to do so. Therefore, this is a very serious situation on which we need to keep watching with a very high level of alertness.


I am Nomura from Sekai Nippo. Although provisional remedial measures such as recapitalization and governmental capital injection are certainly necessary, will they resolve the European fiscal and financial crisis? Is there any fundamental solution? These questions are the cause of concern for international financial markets. The kind of policy centering on austerity and tax increase that has been adopted by Greece has created a very difficult situation, triggering large-scale demonstrations. To fundamentally resolve the fiscal and financial crisis, the leaders from around the world will need to discuss how to fundamentally redress the neo-liberalism that has been promoted by the United States. Could you offer your thoughts on that?


Among the G-20 and G-7 countries, and even in the United States, the need for regulation has been recognized, as indicated by the enactment of the Dodd-Frank Act, which strengthens financial regulations, as opposed to neo-conservatism, which basically pursues the thorough deregulation of the financial sector and the minimization of government involvement. Following the enactment of that act, the United States is working out the details of regulations, including the Volcker Rule. As for European banks, U.K. banks are rather closer to the U.S. style of finance as you know, while Germany and France have continental financial systems, which are conservative, like the Japanese financial system. As to the first question, which concerned neo-conservatism, the mood around the world some time ago was such as to encourage financial institutions to create any type of financial product in exchange for accepting full self-responsibility, and Japan was no exception. However, now, the mood has changed very much even on Wall Street. In that sense, I think that countries have a feeling of contrition about the wave of neo-conservatism that swept through the world at one time.

As for the other question, which concerned Europe, basically European affairs are up to Europeans themselves to decide. I heard from officials of the European monetary and financial authorities about an opinion like the one that you mentioned. I refrain from making comments, as it is up to Europeans to make the decision. Some people expressed an opinion similar to the one that Mr. Nomura mentioned now.

However, this is not something on which I should comment. Primarily, it is important that Europeans decide how to deal with European affairs.


I am Namikawa from Toyo Keizai.

Although you said Dexia does not have a branch in Japan, it used to have one here and pulled out later.


A. That is correct.


If I remember correctly, rules on what to do with the assets and liabilities of local branches of a failed foreign financial institution with international operations were set in the 1990s under the Basel agreement. However, those rules were criticized as utterly unrealistic. Isn't there any risk that problems like this will emerge in the future?


Although I do not have precise information for now, it is true that Dexia used to have a Japanese branch even though it has none now.

While I do not have relevant knowledge about the relationship between Japanese branches of banks that have international operations and the parent companies in their home countries, that is a very important matter. Therefore, it is necessary to do everything possible to ensure the stability of the global financial system and protect users around the world. It is also essential to ensure an appropriate exercise of the financial intermediary function so as to enable each country to achieve economic development while maintaining the stability of financial institutions, as I have repeatedly said. If all we wanted to do was to strengthen financial institutions, we should raise the required capital adequacy ratio. However, if we decided to force financial institutions to increase their capital, a credit crunch would occur as was the case in Japan, causing a rapid economic contraction. Therefore, keeping the right balance is important for financial institutions as a whole, and that has been confirmed under the Basel III agreement. That was the basic philosophy of the agreement, as I understand it. As to what to do in the case of local branches of foreign banks, allow me some time to study the question with that in mind.


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