Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, October 21, 2011, from 11:15 a.m. to 11:35 a.m.)

[Opening Remarks by Minister Jimi]

On October 18 and 19, I visited Iwate Prefecture in order to grasp the actual circumstances of the areas struck by the Great East Japan Earthquake and exchange opinions with financial institutions. In Morioka, Kamaishi and Miyako Cities, I heard from representatives of local financial institutions and post offices about the status of disaster damage and exchanged opinions with them.

In Kamaishi City, I also heard from representatives of disaster-struck companies about their recovery efforts.

From the representatives of local financial institutions, I heard about the current status of their borrower companies; that they see a turn for the better in business prospects for 30% of the companies, a turn for the worse for 30% and no change for 40%. I also heard about the financial institutions' serious efforts to provide funds while making use of government-affiliated financial institutions' finance programs as necessary in light of the difficult circumstances of the disaster areas.

In the meantime, I expressed my hope that financial institutions will continue to actively exercise their financial intermediary function to facilitate the post-earthquake restoration and reconstruction, and that they will positively consider using the amended Act on Special Measures for Strengthening Financial Functions that was put into force in July this year.

I also visited the city office of Kamaishi, where Mayor Noda asked me to expand measures to deal with the double loan problem and city assembly chairman Ebihara requested that the network of post offices be maintained.

In the future, the Financial Services Agency (FSA) and the Cabinet Secretariat's Office for Postal Reform will do their utmost toward reconstruction by taking necessary measures.

That is all I have to say.

[Questions & Answers]

Q.

Regarding earthquake insurance, debate on fundamental reform has started. While I suppose that the debate will proceed under the leadership of the Ministry of Finance, how will the FSA approach this issue?

A.

As you pointed out, a working group set up under the Ministry of Finance is debating how the special account for earthquake reinsurance should be managed. However, I understand that a decision has not been made to revise the specifics of the reinsurance system, such as the compensation amount and insurance premium rate.

In light of the important role played by earthquake insurance in stabilizing the people's lives after the Great East Japan Earthquake, the FSA believes that the debate on how the system should be operated must be held on the underlying premise that policyholders rest reassured.

According to the Bank of Japan's report the day before yesterday, the amount of deposits in the three disaster-struck prefectures in the Tohoku region has increased.

When the chairman of a major bank with nationwide operation came to me after being re-elected at a general shareholders' meeting, he told me about an increase in the amount of deposits at his bank's Sendai branch. When I asked the reason for that, he explained that earthquake insurance claims totaling around 1,200 billion yen have been paid out and expressed his appreciation for the quick response made by the General Insurance Association of Japan and non-life insurance companies. Insurance claims totaling around 1,200 billion yen have been paid out in the six prefectures of the Tohoku region and Ibaraki Prefecture. In Miyagi Prefecture alone, insurance claims totaling slightly more than 500 billion yen have been paid out, and the chairman of the bank said that was probably the reason for the increase in deposits.

During my latest visit to Iwate Prefecture, I met with the presidents of regional banks and representatives of Shinkin banks, and they also mentioned an increase in deposits, so I suppose that this is a general trend.

The assumed reason for making deposits varies from person to person. In some cases, business owners have temporarily deposited funds that they would otherwise have used for capital investment because, due to the absence of a reconstruction plan, whether they will be permitted to rebuild their factories in the disaster areas is still unclear. In the case of individuals borrowing housing loans, they have probably deposited their money because it is still unclear due to the absence of an urban redevelopment plan whether they will be permitted to rebuild their houses in the disaster areas.

In any case, I believe that the increase in deposits is contributing to the stabilization of the lives of the people in the disaster areas, so I believe that the debate should be held on the underlying premise that policyholders rest reassured.

Q.

The former president of Olympus is requesting the disclosure of additional information on the grounds that there may have been inappropriate transactions related to the company's business acquisitions. As the minister responsible for the disclosure of the requested information, are you conducting an investigation, or do you have a plan to do so?

A.

I am aware of media reports that former Olympus Corporation President Michael Woodford has sent to the Securities and Exchange Surveillance Commission a letter requesting an investigation. However, as this is a matter concerning an individual company, I would like to refrain from making comments.

Generally speaking, when a violation of laws, mainly the Financial Instruments and Exchange Act, is suspected, an inspection is conducted as necessary.

Q.

I am Oshima from Kinyu Times. I also visited the disaster areas this week and I found that reconstruction work has hardly started. There are only several months to go before the expiry of the SME Financing Facilitation Act. Is it possible for you to consider extending this act again?

A.

When I visited the disaster areas, I also felt that very few companies had achieved restoration and recovery. Among obstacles are the double loan problem and the loss of employees at many companies. In Kamaishi City, only one company, which is engaging in fishery product processing, is managed by a president in his 50s, and has a workforce of around 100 employees, has achieved recovery using a 150-million-yen loan from Development Bank of Japan (DBJ), a government-affiliated bank. The company had three factories, only one of which has been restored. I visited that factory and heard from the president about various matters.

The company restarted the factory using the 150-million-yen loan from DBJ. The company used to employ around 100 workers. DBJ will provide other necessary funds through syndicated loans with a private financial institution, specifically a major regional bank in Iwate Prefecture.

A manager of a private financial institution expressed a frank opinion in somewhat blunt terms, saying: “I used to think that government-affiliated financial institutions are obstructing our business, but now that we, a private financial institution, have provided a syndicated loan with a government affiliated financial institution after the earthquake, I have come to understand the respective advantages of private and government-affiliated financial institutions.”

As I have repeatedly stated in the Diet, in times like these, private and government-affiliated financial institutions should complement each other so as to contribute to the post-earthquake restoration and reconstruction as they have their respective advantages.

What the president of the major bank in Iwate Prefecture said was the same as what the positive-thinking company president in his 50s who achieved recovery in Kamaishi City said. Having visited the disaster areas, I have been reminded that in times of restoration and reconstruction like these, government-affiliated and private financial institutions should work together as best they can to exercise their respective strengths.

In that sense, I hope that financial institutions will do their part.

Q.

I am Namikawa from Toyo Keizai. Could you reply to the question that I put to you last week?

(Note) Mr. Namikawa's question at the press conference on October 11: “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?”

A.

Regarding the question Mr. Namikawa asked last week, which concerned the procedures to be taken when a foreign bank with a branch in Japan has failed, I have done some homework. First of all, the FSA will collect information about the troubled bank through routine supervisory processes while maintaining cooperation with the Bank of Japan and overseas supervisory authorities and then strive to grasp the situation in a timely manner by monitoring the bank's status of liquidity and transactions.

As for the procedures to be taken in Japan when a foreign bank with a branch in Japan has failed, it is difficult to generalize, as the response would depend on how the failure has occurred and what legal actions are taken in the home country. In any case, if a foreign bank has failed, the FSA will strive to take appropriate action quickly in cooperation with the Bank of Japan and overseas authorities while trying to minimize the impact on domestic depositors and the Japanese financial system.

After receiving a question related to the Basel Committee at the previous press conference, I did a bit of homework. By the 1990s, the Basel Committee on Banking Supervision set standards and presented recommendations concerning the division of roles between the authorities of the home countries of internationally active banks and of the foreign countries where the banks have branches and information exchange systems. However, I understand that those standards and recommendations did not include rules on the resolution of the failure of such banks.

However, since the Lehman shock occurred in 2008, the Financial Stability Board has held debate on the development of an effective framework for the resolution of failures of global systemically important financial institutions (G-SIFIs), including the treatment of foreign branches. A final conclusion is scheduled to be reached on this framework before the Cannes summit in November, so the FSA will continue to actively participate in the international debate.

The treatment of foreign banks' subsidiaries in Japan is very different from the treatment of their branches in the country, and complex issues are involved. Therefore, if you have any questions, please contact the FSA staff in charge. Some foreign banks have subsidiaries and others have branches in Japan. The treatment varies between cases where foreign banks have subsidiaries in Japan and cases where they have branches in the country. There are minute procedural differences, and basically, the rules will be set by the Basel Committee. The draft rules on what to do if a G-SIFI fails have been worked out. If you need background information and the like, please contact the FSA staff, who will give you detailed explanations.

In any case, thank you for asking a very meaningful question.

(End)