Press Conference by Ikko Nakatsuka, Minister for Financial Services

(Excerpt)

(Friday, November 9, 2012, from 9:17 a.m. to 9:31 a.m.)

[Questions & Answers]

Q.

In the U.S. presidential election, President Obama was reelected. As the incumbent president was reelected, the existing financial regulation and other policies are likely to be maintained. What do you think of that?

A.

First, I would like to offer my heart-felt congratulations to the president for winning the election after going through a tough campaign.

After the Lehman Shock, financial regulatory reforms as represented by the Dodd-Frank Act have consistently been carried out in the United States, under President Obama. Preventing a recurrence of financial crises, and further stabilizing and strengthening the financial system are common challenges for various countries, so we have already been studying financial regulatory reforms while maintaining international cooperation, and each country has been implementing reforms.

However, regarding the Volcker rule and the regulation of over-the-counter derivatives, among other U.S. financial regulatory reforms, there is the problem of extraterritorial application. There are concerns that it could have various adverse effects on the global financial markets and financial institutions. Therefore, the Financial Services Agency (FSA) has requested the United States to review the extraterritorial application of those regulatory measures while maintaining cooperation with the Bank of Japan and foreign financial authorities.

To ensure that Japan's concerns are dispelled, the FSA will continue consultations with the U.S. regulatory authorities. We will implement financial regulatory reforms while promoting cooperation with countries with which Japan shares such concerns.

Q.

Regarding the educational insurance product for which Japan Post Insurance has applied, Chairman Nishimuro of the postal privatization committee made remarks at his previous press conference to the effect that the decision will be made at the next meeting of the committee. He seems to be eager to accelerate the examination process. What do you think of the way he is proceeding with this matter? Does the FSA have nothing to say about that?

A.

First, I would like to state the facts. On October 12, in response to the postal privatization committee's request, the FSA staff explained the situation of the examination so far conducted.

Regarding educational insurance, the examination of the sales projection of the new product and the revenue-expenditure plan is insufficient, and there is doubt about the accuracy of the assumption that other companies' market shares will not be affected even if Japan Post Insurance's sales increase because of the new product. This would be the first revision of the basic contract in nine years for Japan Post Insurance, and we must check whether there is an adequate system to properly manage a huge computer system that links 24,000 post offices across the nation. In light of the fact that many cases of unpaid benefits occurred at insurance companies, including Japan Post Insurance, we must also check whether Japan Post Insurance has, at the least, established a management system that prevents many cases of unpaid benefits. As of July 2010, Japan Post Insurance was a public corporation, and it announced that there had been 250,000 cases of unpaid benefits worth a total of 33.2 billion yen while it was a public corporation. We informed Chairman Nishimuro that the FSA is discussing these various points.

The minutes of that meeting were published on November 6 (Tuesday) on the postal privatization committee's website, so I would like you to refer to it.

The FSA has already held very frequent discussions with Japan Post Insurance, but frankly speaking, our examination has not made sufficient progress. Therefore, it would be too early to reach a conclusion. I would like Japan Post Insurance to provide further cooperation for the FSA's examination.

In relation to what the FSA explained at the postal privatization committee's meeting on October 12, Chairman Nishimuro requested us to provide the most up-to-date information on the progress situation of the examination, so the FSA will inform the committee of the subsequent situation of examination.

In any case, as I always say, the FSA is responsible for listening to the privatization committee's opinion in accordance with the Postal Service Privatization Act and implementing the approval process together with the Ministry of Internal Affairs and Communications. In addition, we are also responsible for implementing the approval process based on the Insurance Business Act. We will spend an appropriate amount of time on examination in order to properly and adequately perform both responsibilities.

Q.

Although Chairman Nishimuro says that the decision will be made at the next meeting, may I take it that you believe the points you mentioned should be discussed again at the next meeting?

A.

As I mentioned earlier, Chairman Nishimuro requested us to provide the most up-to-date information on the progress situation of the examination, we will inform the postal privatization committee of the subsequent situation of examination.

Q.

From what you said earlier, I had the impression that examination is insufficient with regard to the revision of Japan Post Insurance's new education insurance product. Is that correct?

A.

As I mentioned earlier, although we have had very frequent consultations, our examination has not made sufficient progress. Therefore, it would be too early to reach a conclusion. We would like to request Japan Post Insurance to provide further cooperation with the FSA's examination.

Q.

In relation to a few earlier questions, may I take it that your statement that it would be too early to reach a conclusion indicates your view that there is still room for improvement and that it will take much time?

A.

As I said earlier, our examination has not made sufficient progress. It would be too early to reach a conclusion, so we would like to request Japan Post Insurance to provide further cooperation with the FSA's examination.

Q.

Regarding Japan Post Insurance, Chairman Nishimuro said the examination regarding educational insurance should be conducted first because he wants to ensure that approval is granted in time for the new school year starting next April. Is that an influencing factor for the FSA's examination?

A.

As I mentioned earlier, I would like Japan Post Insurance to provide further cooperation with the FSA's examination if it wishes to introduce the new product in April.

Q.

You said several times that you would like Japan Post Insurance to provide furtherer cooperation with the examination. Specifically what do you mean by that? It sounds as if Japan Post Insurance has not been very cooperative with the examination. Could you specify what you mean?

A.

As we are following the legally prescribed procedures, we would like Japan Post Insurance to provide cooperation if it wishes to introduce the new product in April.

Q.

I would like to ask a question concerning a different matter. According to the statistics on corporate failures announced yesterday, the number of failures of companies that have utilized the SME (Small and Medium-size) Financing Facilitation Act last month reached the highest level since data collection began. Could you offer your thoughts on the fact that the number of SMEs that fail despite utilizing this law is increasing?

A.

It has been nearly three years since the SME Financing Facilitation Act was put into force. Because of this law, I believe that financial institutions' stance on the provision of loans and the modification of loan terms has substantially improved.

If there are problems like the one you mentioned, we will need to shift our focus further to the support for business turnaround of SMEs.

Q.

The statistics released recently by the Cabinet Office and the Bank of Japan indicated that the Japanese economy faces downside risks or that it has already entered recession. You have said that the period of the SME Financing Facilitation Act will not be extended again however much the economic condition deteriorates. May I take it that there has been no change in that stance and that there is no possibility that the period of the law will be extended?

A.

There will be no change in the FSA's stance even if the expiration of the period approaches. That means there will be no change in our approach to inspection and supervision. The definition of non-performing loans will also remain unchanged. In that sense, the SME Financing Facilitation Act will expire as scheduled.

On the other hand, supporting the business turnaround of borrower SMEs is a task to which we must devote increased efforts. As that was included among the priority items of the economic package that the prime minister instructed us to work out, we will properly deal with the task while increasing cooperation with relevant ministries and agencies.

Q.

Mr. Matsuzawa (former governor of Kanagawa Prefecture) has stated his intention to run in the Tokyo gubernatorial election and he announced in his statement a plan to liquidate Shinginko Tokyo, of which the Tokyo Metropolitan Government is the major shareholder. Could you comment on that?

A.

I would like to refrain from commenting on a pledge made by a person who will run in the Tokyo gubernatorial election. In any case, it is not clear what he means by “liquidation.”

In the past, the FSA issued a business improvement order for Shinginko Tokyo. The bank has announced a medium-term business plan, so we will keep a close watch on the bank's business condition and the movements of the Tokyo Metropolitan Government as the major shareholder.

Thank you very much.

(End)