Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Friday, July 20, 2012, from 9:20 a.m. to 9:43 a.m.)

[Questions & Answers]

Q.

The scandal over the illegal manipulation of LIBOR (London Interbank Offered Rate) is widening. Could you comment on it from the perspective of the credibility of the financial market?

Also, what is your view on the problems pointed out in relation to the calculation method of LIBOR?

A.

LIBOR is widely used as an important benchmark interest rate in the financial market, as you know. Therefore, I recognize that the illegal manipulation of LIBOR is a serious problem that could undermine the fairness and transparency of the financial market and obstruct the sound development of the market. I am keeping a close watch on it as a very serious problem.

The Financial Services Agency (FSA) will continue to check individual financial institutions' internal control systems regarding the submission of interest rates through inspection and supervision, and if a problem is recognized, we will take appropriate actions in accordance with laws and regulations.

The FSA refrains from commenting on issues related to the management of LIBOR, such as the calculation method of LIBOR.

Q.

Next, I would like to ask a question concerning TIBOR (Tokyo Interbank Offered Rate). Regarding TIBOR, the Japanese Bankers Association (JBA) started an investigation into domestic and foreign financial institutions. What cooperative measures can the FSA take with the JBA and other organizations, and what actions does it intend to take in the future?

A.

The FSA has been checking individual financial institutions' internal control systems through inspection and supervision. As you know, last December, the FSA ordered the Tokyo branches of Citigroup and UBS Securities to suspend business operation.

I am aware that under these circumstances, the JBA plans to make revisions regarding TIBOR if necessary in light of the results of the review which all 16 banks that submit TIBOR rates conduct on their status of compliance with the guidelines for TIBOR publication as well as the British Bankers' Association's deliberation on the reform of LIBOR.

I am aware that yesterday, July 19, JBA Chairman Sato said at a press conference that the JBA has asked the 16 banks to conduct the review and it will consider making revisions if necessary in light of the results of the review.

I understand that the JBA has requested the voluntary review at its own discretion as an organization responsible for collecting and publishing TIBOR rates in order to further enhance the fairness and transparency of TIBOR. I am also aware that the banks are required to report on the results of the review by August 10.

In any case, I believe that we need to look separately at issues related to the management of TIBOR and issues related to financial institutions' internal control systems, including the illegal manipulation of interest rates.

If a problem is recognized through inspection and supervision, the FSA will take appropriate actions as needed.

Q.

Next, I would like to ask you about the amendment of the Companies Act.

The legislative division on the Companies Act of the Ministry of Justices' Legislative Council adopted an amendment proposal that would refrain from obligating the appointment of outside directors. Despite calls for strengthening corporate governance in response to corporate scandals, the council came up with a compromise proposal that gave consideration to opposition from the Japanese economic circles. How do you view the contents of the amendment proposal?

A.

Regarding the amendment of the Companies Act, I understand that the legislative division on the Companies Act of the Ministry of Justices' Legislative Council is holding discussion with a view to adopting an amendment proposal. I would like to refrain from commenting on this matter at this time. The council has not yet adopted an amendment proposal but is still holding discussion on a draft proposal, so I would like to keep watch on the discussion for a while.

Q.

Next, regarding the suspected involvement of HSBC, a major U.K. bank, in money laundering, there has been a media report that Hokuriku Bank may have been involved in the flow of funds related to this case. Have you received any report on this? Do you intend to investigate this case?

A.

As this is a matter concerning a specific financial institution, I would like to refrain from making comments.

As I already mentioned, the FSA is striving to grasp the status of individual financial institutions' developments of internal control systems through inspection and supervision. We will take appropriate actions in accordance with laws and regulations.

Q.

I am Shinryo from Magazine X.

I would like to ask you about your view on car-related insurance. The FSA has jurisdiction over automobile insurance and compulsory automobile liability insurance. A final decision has not been made on the premium rates of these types of insurance. My understanding is that basically, the FSA is moving to raise the financial burden on users at the beginning of the next calendar year or the next fiscal year. Car users shoulder a heavy burden including taxes, so a premium rate rise is expected to discourage car ownership. What do you think of that?

Also, regarding the postal reform, to which the People's New Party has devoted its greatest effort, Japan Post does not currently provide non-life insurance products in principle. Don't you intend to allow Japan Post to handle non-life insurance or compulsory automobile liability insurance products?

A.

Regarding the premium rate of compulsory automobile liability insurance, the Compulsory Automobile Liability Insurance Council will determine the rate after conducting deliberation, so I would like to refrain from making comments at this time.

As for voluntary automobile insurance, non-life insurance companies set their respective premium rates based on their management judgment in light of the reference loss cost rate, a benchmark premium rate calculated by the Non-Life Insurance Rating Organization of Japan on the basis of the circumstances of the insurance companies' contracts in force as well as drivers' characteristics. I would like to refrain from commenting on a specific level of the premium rate.

In any case, insurance premium rates are determined by taking comprehensive account of various factors, including the status of insurance claims payment and fairness among policyholders. The FSA will take appropriate actions regarding the revision of insurance premium rates from the perspective of the protection of policyholders, including car users.

Q.

Could you answer the question concerning Japan Post?

A.

Japan Post will make a fresh start with a new organization on October 1. What businesses, including which new ones, Japan Post should undertake is a matter for future consideration, and I also think that Japan Post's management judgment should also be respected. Specifics have not yet been determined, so that is all I have in mind for the moment.

Q.

I would like you to give me a more specific answer. You are the People's New Party's deputy leader, and the FSA is in a position to stand behind the socially weak, including small and medium-size enterprises. Regardless of principled arguments, if the People's New Party wants to reform Japan Post, you should not be afraid of batting heads with the private sector. Regarding compulsory automobile liability insurance, there are disputes not only over the balance between insurance premium rates and losses but also over profits for non-life insurance companies and their agencies. In addition, a large amount of subsidies is provided. Subsidies-although not expressed as such-are also provided to mutual insurance businesses. Debate is ongoing not only about the balance between insurance premium rates and losses but also about the involvement of such intermediary entities. What is your view on that point?

A.

I am aware that discussions are ongoing about various matters. The People's New Party is well aware that it must do something in relation to new businesses to be undertaken by Japan Post after its fresh start. Within the People's New Party as well, various matters have been discussed with my participation.

I am aware that discussions are ongoing about several matters and several proposals are under consideration. If proposals concerning new businesses are presented, Japan Post will make judgment on its own before I make judgment as the minister in charge. Various issues will be discussed by councils and other organizations in light of such laws as the Insurance Business Act and the Banking Act. So, I would like to wait for the results of such discussions.

I will not make decisions regarding new proposals with prejudgment and I hope that thorough discussions will be held.

Q.

May I take it that you do not rule out the possibility of Japan Post handling non-life insurance products?

A.

What I am saying is that I would like to wait for the results of discussions to see what problems there are.

Q.

The People's New Party has been arguing all along that Japan Post is important because it has post offices in rural areas. In short, even if cash dispensers are installed in urban areas, that alone will not solve problems, so post offices located in rural areas should be used to provide various postal services. If that is your party's argument, providing life insurance products alone would probably be useless. The car ownership rate is high in rural areas, so post offices should be allowed to handle non-life insurance products, including compulsory automobile liability insurance. I have said that that will be inevitable from that viewpoint. Finally, could you comment on that?

A.

As the Compulsory Automobile Liability Insurance Council is discussing this matter, I would like to refrain from making comments.

Q.

I am from The Tsushin-Bunka Shinpo.

In relation to Japan Post's new businesses, the People's New Party has apparently proposed a scholarship program using funds of Japan Post Bank. Could you tell me about how the proposal will be treated?

A.

The day before yesterday (July 18), senior officials of the People's New Party, including party leader Jimi, visited me and proposed bridge loans using at-entrance down payments provided by the Japan Students Services Organization program. I am aware of the contents of the proposal. Making Japan an education-oriented country is a policy pillar of the People's New Party, so I, as the party's deputy leader, regard this as a very important proposal.

As for the issue of how Japan Post Bank should handle it as a new business, I think that the bank should make management judgment on its own, including with regard to education-related loans. However, if this is proposed as a new business and the bank decides to undertake it, the proposal will go through the deliberation process in accordance with the prescribed procedures, and I will keep a close watch on that as the minister in charge. As I heard about the proposal just a short time ago, I will closely examine its details.

Q.

Regarding TIBOR, you referred to the start of the JBA's investigation. How do you view the fact that banks will conduct voluntary review? Also, what results do you expect the review will produce?

A.

I have high regard for the JBA's decision to ask 16 banks to conduct voluntary review and report on the results of the review by August 10. I have high regard for the fact that the JBA, on its own initiative, has asked the 16 banks to conduct review under a certain deadline.

Q.

This is a question I already asked you on Tuesday (July 17). On July 13, at a meeting of the Liberal Democratic Party's Land, Infrastructure and Transport Division, the possibility was pointed out that the provision of new capital to JAL (Japan Airlines) by several companies in March last year, just before the completion of the corporate rehabilitation procedure, may constitute insider trading. The reasoning is that those companies may have provided capital while knowing for sure that the prices of JAL shares would rise after relisting. What is your view on that?

A.

Generally speaking, regarding companies which have received public funds, including JAL, it is important to ensure fairness and transparency. I expect that relevant ministries and agencies will take appropriate actions.

The insider trading as defined under the Financial Instruments and Exchange Act (FIEA) is applicable to sales and purchase of stocks issued by listed companies, so I understand that the purchase of JAL shares, which is not a listed company, does not violate the insider trading regulation under the FIEA.

Q.

Regarding this matter, I have just one more question. I can understand that the purchase does not violate the insider trading regulation under the FIEA, but what did you have in mind when you referred to the “appropriate actions” that should be taken?

A.

Regarding JAL, which has received public funds and the recovery of which is attracting public attention, it is very important to ensure an increased level of fairness and transparency, and the people are keeping a close watch on this matter. From that viewpoint, I expect that relevant ministries and agencies will take appropriate actions.

Q.

In short, do you mean that JAL itself should take actions to dispel such suspicion? Do you think that JAL should clarify uncertain points?

A.

I can understand your curiosity, but what I am saying is that I would like relevant ministries and agencies to take appropriate actions.

Q.

By “relevant ministries and agencies,” are you referring to JAL or some other organization, such as the Ministry of Land, Infrastructure, Transport and Tourism, for example?

A.

I am referring to government organizations. I hope that appropriate actions will be taken by government organizations, such as the Cabinet Office, which has jurisdiction over Enterprise Turnaround Initiative Corporation of Japan, and the Ministry of Land, Infrastructure, Transport and Tourism, which has jurisdiction over aviation administration. It is necessary to take actions that take account of JAL's position, which requires fairness and transparency.

Thank you very much.

(End)